The Impact of the North American Shale Gas Revolution on Regional Natural Gas Markets: Evidence from the Regime-Switching Model

Energy Policy, 96, 167-178 (2016)

34 Pages Posted: 8 Jul 2016 Last revised: 24 Jul 2016

See all articles by Jiang-Bo Geng

Jiang-Bo Geng

University of Science and Technology of China (USTC) - School of Management

Qiang Ji

Chinese Academy of Sciences (CAS) - Institute of Policy and Management

Ying Fan

Chinese Academy of Sciences - Institute of Policy and Management - Center for Energy and Environmental Policy Research

Date Written: January 30, 2016

Abstract

This paper investigates the impact of the North American shale gas revolution on price movement regimes in the North American and European gas markets, using the Markov regime-switching model. It then measures price spreads between oil and gas from 1998 to 2015 to identify the impact of the revolution on the relationship between oil and regional gas prices. The results show that the typical movement regime of Henry Hub prices changes from 'slightly upward' to 'sharply downward'. In addition, the clear seasonal effect of Henry Hub prices has disappeared after the shale gas revolution. The typical movement of national balancing point (NBP) prices has changed gradually from a 'sharply up-ward' regime to the alternative regimes between 'sharply downward' and 'slightly upward', tending to follow oil prices. This indicates that the shale gas revolution has had little impact on NBP price movement. Meanwhile, Henry Hub prices have decoupled from WTI prices, while NBP and Brent prices have continued to exhibit a long-term equilibrium level around which they have swung in the short timeframe since the shale gas revolution. Pertinent energy policy makers and energy market participants should pay attention to these changes and adjust their trade, production and investment strategies accordingly.

Keywords: Shale gas revolution, Natural gas market , Regime-switching model, Price spreads

Suggested Citation

Geng, Jiang-Bo and Ji, Qiang and Fan, Ying, The Impact of the North American Shale Gas Revolution on Regional Natural Gas Markets: Evidence from the Regime-Switching Model (January 30, 2016). Energy Policy, 96, 167-178 (2016), Available at SSRN: https://ssrn.com/abstract=2804134

Jiang-Bo Geng

University of Science and Technology of China (USTC) - School of Management ( email )

China

Qiang Ji (Contact Author)

Chinese Academy of Sciences (CAS) - Institute of Policy and Management ( email )

No.15 ZhongGuanCun BeiYiTiao Alley
Haidian District
Beijing, 100190
China

Ying Fan

Chinese Academy of Sciences - Institute of Policy and Management - Center for Energy and Environmental Policy Research ( email )

52 Sanlihe Rd.
Datun Road, Anwai
Beijing, Xicheng District 100864
China

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