Pricing dynamics of natural gas futures

Growth in the natural gas market is pronounced since the shale gas boom. Natural gas has become increasingly important in international trade, especially after the recent financialization in commodity markets. Motivated by the high volatility and time-varying nature in natural gas futures prices, understanding the pricing dynamics of natural gas is essential for risk management. In this paper, we adopt a class of computationally efficient discrete-time pricing models and construct futures dynamics by differentiating three subsamples which represent time-varying market conditions. We find strong evidence of positive jumps in the natural gas market and higher jump intensity in a more volatile period. The dynamic jump intensity model has a better model fit both in-sample and out-of-sample, suggesting time-varying jumps are necessary for pricing natural gas derivatives.     

The emerging hydrogen economy and its impact on LNG

Hydrogen is gaining prominence as a critical tool for countries to meet decarbonisation targets. The main production pathways are based on natural gas or renewable electricity. LNG represents an increasingly important component of the global natural gas market. This paper examines synergies and linkages between the hydrogen and LNG values chains and quantifies the impact of increased low-carbon hydrogen production on global LNG flows. The analysis is conducted through interviews with LNG industry stakeholders, a review of secondary literature and a scenario-based assessment of the potential development of global low-carbon hydrogen production and LNG trade until 2050 using a novel, integrated natural gas and hydrogen market model. The model-based analysis shows that low-carbon hydrogen production could become a significant user of natural gas and thus stabilise global LNG demand. Furthermore, commercial and operational synergies could assist the LNG industry in developing a value chain around natural gas-based low-carbon hydrogen.     

Future evolution of the liberalised European gas market: Simulation results with a dynamic model

Strategic behaviour by gas producers is likely to affect future gas prices and investments in the European Union (EU). To analyse this issue, a computational game theoretic model is presented that is based on a recursive-dynamic formulation. This model addresses interactions among demand, supply, pipeline and liquefied natural gas (LNG) transport, storage and investments in the natural gas market over the period 2005–2030. Three market scenarios are formulated to study the impact of producer market power. In addition, tradeoffs among investments in pipelines, LNG liquefaction and regasification facilities, and storage are explored. The model runs indicate that LNG can effectively compete with pipelines in the near future. Further, significant decreases in Cournot prices between 2005 and 2010 indicate that near-term investments in EU gas transport capacity are likely to diminish market power by making markets more accessible.     

Economic evaluation of natural gas transportation from Iran’s South-Pars gas field to market

The worldwide consumption of natural gas is rapidly increasing. To satisfy such a demand, there are some plans to transport natural gas from South-Pars gas field, the largest natural gas field of Iran, to some energy consuming countries. There are several possible technologies for transporting gas from production fields to consuming markets as gas, including PNG (pipeline natural gas), LNG (liquefied natural gas), CNG (compressed natural gas) and NGH (natural gas hydrate). Gas transmission projects are sensitive to technology selection and depending on the capacity and distance; chosen technology may affect the economy of the entire project noticeably. In this work, transporting 100 × 10⁶ standard m³/d natural gas from port of Assaluyeh in south of Iran to potential markets using alternative technologies such as PNG, LNG, CNG and NGH has been investigated. To do such a study, required processes for converting natural gas to desired product and then transporting it to market have been designed and using an economical model, cost of transporting natural gas as a function of distance, has been estimated. Results show for the investigated case, PNG has the lowest production cost for distances up to 7600 km and for larger distances, LNG has the lowest production cost.     

Determinants of global natural gas consumption and import–export flows

Based on the data of the BP Statistical Review of World Energy, this paper constructs the consumption and import–export of natural gas identities. It discusses the drivers of changes in global natural gas consumption and trade flows from 2008 to 2015 using the extended logarithmic mean Divisia index. The results show that differences in the natural gas supply and demand across countries or regions, as well as the distribution of energy between the domestic and international markets, can be better explained when natural gas trade movements are considered. By comparing the supply and consumption increment of natural gas, this study finds that only the energy intensity, economic growth, and demographic effects are consistent with each other. The changes in the impact of other effects mainly depend on storage variations and statistical errors. In addition, the primary drivers of the incremental changes in natural gas consumption vary in different countries. They include production scale, import scale, export scale, consumption structure proportion, energy intensity, economic growth, and population and balance effects. Finally, the consumption competitiveness of the liquefied natural gas significantly improved over the examined period.     

Hydrogen storage: Recent improvements and industrial perspectives

Efficient storage of hydrogen is crucial for the success of hydrogen energy markets (early markets as well as transportation market). Hydrogen can be stored either as a compressed gas, a refrigerated liquefied gas, a cryo-compressed gas or in hydrides. This paper gives an overview of hydrogen storage technologies and details the specific issues and constraints related to the materials behaviour in hydrogen and conditions representative of hydrogen energy uses. It is indeed essential for the development of applications requiring long-term performance to have good understanding of long-term behaviour of the materials of the storage device and its components under operational loads.     

Natural gas development in Indonesia

Indonesia is a major exporter of liquefied natural gas (LNG). In this paper, we describe the growth of the natural gas industry in Indonesia, both for export and for domestic markets. With regard to gas exports, important decisions had to be taken at an early stage. These included the choice of LNG over methanol as the export medium, the selection of an appropriate market (Japan), the decision to place all gas exports in the hands of a single, public entity (Pertamina), and the choice between FOB and CIF sales. Pricing was also a critical issue. Since 1977, when LNG exports began to flow, domestic gas utilization has become an increasingly important goal in Indonesia. The rapid growth of local energy consumption and the possibility of using gas to free up additional oil for export have been important motivating factors. For the first time, natural gas became an exploration target rather than a by-product of oil-exploration efforts. Moreover, local gas-based industries began to expand in the region surrounding the LNG export facilities at Arun. Also, after 1977, the domestic price of natural gas was increased in order to provide a greater incentive for gas exploration and development. Indonesia has considerable potential for future gas discoveries.     

European wood pellet market integration - A study of the residential sector

The integration of European energy markets is a key goal of EU energy policy, and has also been the focal point of many scientific studies in recent years. International markets for coal, oil, natural gas and electricity have previously been investigated in order to determine the extent of the respective markets. This study enhances this field of research to bioenergy markets. Price series data and time series econometrics are used to determine whether residential sector wood pellet markets of Austria, Germany and Sweden are integrated. The results of the econometric tests show that the German and Austrian markets can be considered to be integrated, whereas the Swedish market is separate from the other two countries. Although increased internationalization of wood pellet markets is likely to contribute to European price convergence and market integration, this process is far from completed.     

Defining geographic coal markets using price data and shipments data

Given the importance of coal in world energy supply an analysis of the relevant geographic market is essential for consumers, producers, as well as for competition policy. The purpose of this paper is to define the relevant economic market for steam and coking coal, and to test the hypothesis of single world markets for these coal products. Methodologically the paper relies on two different tests for defining markets, using both shipments data and price data. The results from both methods point in the same direction. In the case of coking coal the results indicate that the market is essentially global in scope, and also that the market has become more integrated over time. The results for steam coal show that the market is more regional in scope, and there exist no clear tendencies of increased integration over time. One policy implication of the finding that the steam coal market is more regional in scope, and thus that the market boundary is smaller than if the market would have been international, is that a merger and acquisition in this market likely would have been of a more concern for antitrust authorities than the same activity on the coking coal market.     

The development of natural gas supply costs to Europe,the United States and Japan in a globalizing gas market—Model-based analysis until 2030

Quickly declining natural gas reserves in some parts of the world, increasing demand in today's major gas consuming regions, the emergence of new demand centres and the globalization of natural gas markets caused by the rising importance of liquefied natural gas (LNG) are changing global gas supply structures and will continue to do so over the next decades. Applying a global gas market model, we produce a forecast for global gas supply to 2030 and determine the supplier-specific long-run average costs of gas supplied to three major consuming regions. Results for the three regions are compared and analysed with a focus on costs, supply diversification and the different roles of LNG. We find that while European and Japanese external gas supply will be less diversified in international comparison, gas can be supplied at relatively low costs due to the regions’ favourable locations in geographic proximity to large gas producers. The US market's supply structure on the other hand will significantly change from its current situation. The growing dependency on LNG imports from around the world will lead to significantly higher supply costs but will also increase diversification as gas will originate from an increasing number of LNG exporting countries.     

Prospects of gas supply until 2020 in Europe and its relevance for the power sector in the context of emission trading

With the liberalization of energy markets and the introduction of an emission trading system, electricity production by gas combined cycle power plants has significantly increased in the European Union in recent years. Reasons for the significant increase include the short construction time for gas power plants and the favourable investment costs. One further advantage is the relatively low CO₂ emissions of gas power plants. Thus, a key option for reducing emissions is seen in the increased use of gas for power production. Model calculations from various models show that an increase of gas power production is expected. In general, however, the interdependencies of the different markets (gas, electricity and CO₂) as well as the country-specific gas supply options, determined by pipelines and liquefied natural gas (LNG), are neglected. As the competitiveness of gas power plants mainly depends on the availability of gas and the gas price, a novel model that integrates electricity, gas, and CO₂- emission markets assuming perfect competition will be presented. The objective of this paper is to analyse the long-term relevance of the gas market for the electricity sector in the European Union in the context of CO₂-emission reduction targets.     

The relationship between spot and contract gas prices in Europe

Following deregulations in the European gas market, spot trading of natural gas has been established in the UK, Belgium and the Netherlands, while long-term contracts remain the dominant pricing process in continental Europe. In this paper we investigate the degree of market integration between the three spot markets, the contract gas price in Germany and the oil price. The results indicate a highly integrated market, and there is no evidence of an independent price determination process for natural gas.     

Potential applications using LNG cold energy in Sicily

According to previsions, natural gas could be the main energy source worldwide, inducing relevant geopolitical changes. Most likely, such problems will be solved with the development of a gas transportation mode alternative to traditional pipelines: liquefied natural gas (LNG). The global LNG trade has increased rapidly during recent years. A significant amount of energy is consumed to produce low‐temperature LNG, which has plenty of cryogenic exergy/energy. Therefore, the effective utilization of the cryogenic energy associated with LNG vaporization is very important. Sicily, with more than five million inhabitants, is the second biggest region of Italy and in this region will be realized two of the 11 gasification plants planned in Italy according to the regional energy master‐plan. This paper shows some interesting applications for the cold produced in gasification plants, e.g. for seawater desalination and for fresh and frozen food production and conservation. These applications seem very interesting for Sicilian situation and also can contribute to energy saving and greenhouse gases reduction to match Kyoto Protocol targets. Copyright © 2008 John Wiley & Sons, Ltd.     

Does renewable energy substitute LNG international trade in the energy transition?

Renewable energy is a vital tool for the energy transition and sustainable development goals. The global economy, however, remains heavily reliant on fossil fuels despite efforts to reduce global greenhouse gas emissions. Demand for natural gas is rising as a bridge for moving towards a low-carbon economy, but whether natural gas and renewable energy represent substitutes in the global energy mix remains underexplored. We tackle this concern by examining the impact of renewable policies on international trade in liquified natural gas (LNG) among 1359 trading partners during the period 1988–2017. We measure renewable energy policies based on the ratio of renewable energy to total energy usage in importing trading partners, which also corresponds to a proxy for energy transition policies. The analysis is conducted using a global panel dataset in a trade gravity framework by applying various econometric methods and model specifications to measure LNG trade as a dependent variable. The results show that the energy transition, measured by the share of renewable energy, has a negative impact on LNG trade. This suggests that investing in cleaner energy technologies can reduce LNG trade globally, as a channel towards reducing natural gas demand. The results are consistent with the narrative where natural gas and renewable energy represent partial substitutes at the global level. However, subgroup analysis suggests that less-developed economies and the shale revolution period seem to impede progress towards the energy transition.     

中外碳交易市场发展现状分析

《京都议定书》的生效,标志着国际社会开始以法律手段来限制温室气体排放,其中采取的重要机制之一就是碳排放权交易。清洁发展机制(CDM)、联合实施机制(JI)、国际排放权交易体系(IET)三种灵活机制作为碳金融工具,在关键国家和地区实施并迅速发展。CDM和JI是基于项目的市场,IET是基于配额的市场。目前国际碳交易市场以配额为主体,以项目交易为补充。西方发达国家已建成了全球性的碳交易市场,其中欧盟排放交易体系(EU ETS)是目前全球最大的排放交易体系。近年全球碳交易量及交易额迅速增长,预计2020年有望分别达到440×108t和5799亿美元,国际金融机构也积极参与碳交易市场。我国碳交易市场仍处于起步阶段,目前还只有CDM一种交易机制,国家已批准在7省市成立碳排放权交易试点。截至2013年6月底,我国签发的CDM项目数占到世界总量的61.76%。针对目前国内存在的问题,建议国家应设法扩大碳金融的影响力,建立统一的排放权交易平台,加强金融业对CDM项目的支持,完善碳金融法律框架,加大知识产权保护力度,同时要大力发展中介市场。     

Welfare and competition effects of electricity interconnection between Ireland and Great Britain

This study analyzes the effects of additional interconnection on welfare and competition in the Irish electricity market. I simulate the wholesale electricity markets of the island of Ireland and Great Britain for 2005. I find that in order for the two markets to be integrated in 2005, additional interconnection would have to be large. The amount of interconnection decreases for high costs of carbon, since this causes the markets to become more similar. This suggests that in the absence of strategic behavior of firms, most of the gains from trade derive not from differences in size between countries, but from technology differences and are strongly influenced by fuel and carbon costs. Social welfare increases with interconnection, although at a decreasing rate. As the amount of interconnection increases, there are also positive effects on competition in Ireland, the less competitive of the two markets. Finally, it is unlikely that private investors will pay for the optimal amount of interconnection since their returns are significantly smaller than the total social benefit of interconnection.     

中国发展液化天然气面临的机遇和挑战

世界天然气消费量在一次能源结构中已占到24%,预计10年后将上升到35%,成为第三大能源。北美洲、欧洲主要是买方市场,中南美洲、中东和非洲主要是卖方市场,而亚太地区既是主要的进口市场,也是LNG出口的主要来源地区之一。未来10年全球LNG供应将持续趋紧,印度和中国将成为LNG消费的新兴市场。中国发展LNG必须注意资源接替和持续供应,基础设施、设备的建设和扩建,投资主体多元化,天然气市场培育和市场监管等问题。     

The future of natural gas consumption in Beijing,Guangdong and Shanghai: An assessment utilizing MARKAL

Natural gas could possibly become a si0gnificant portion of the future fuel mix in China. However, there is still great uncertainty surrounding the size of this potential market and therefore its impact on the global gas trade. In order to identify some of the important factors that might drive natural gas consumption in key demand areas in China, we focus on three regions: Beijing, Guangdong, and Shanghai. Using the economic optimization model MARKAL, we initially assume that the drivers are government mandates of emissions standards, reform of the Chinese financial structure, the price and available supply of natural gas, and the rate of penetration of advanced power generating and end-use. The results from the model show that the level of natural gas consumption is most sensitive to policy scenarios, which strictly limit SO₂ emissions from power plants. The model also revealed that the low cost of capital for power plants in China boosts the economic viability of capital-intensive coal-fired plants. This suggests that reform within the financial sector could be a lever for encouraging increased natural gas use.     

Indicators of security of natural gas supply in Asia

Natural gas has become an increasingly valuable resource and a global commodity. The demand for it has significantly increased. Japan, Korea and Taiwan heavily rely on liquefied natural gas (LNG) imports for their gas supplies from Malaysia, Brunei, Indonesia, Australia and the Middle East. On the other hand, countries like Thailand and Singapore import gas via trans-border pipelines. Gas supply interruptions, volatile gas prices, transportation and distribution bottlenecks, and a growing reliance on imports over longer distances have renewed interest on gas security in Asia. This paper examines the relative vulnerability to natural gas supply disruptions of seven gas-importing countries in Asia for year 2008. Based on four indicators of security of gas supply, a composite gas supply security index is estimated as an overall indication of gas vulnerability for our sample countries. The results demonstrate that there are differences in the values of the overall indicator of gas vulnerability among countries and the assessment is useful in developing an effective strategy of natural gas supply security in countries in the Asian region.     

Frack to the future: What enticed small firms to enter the natural gas market during the hydraulic fracturing boom?

The shale gas boom of the early 2000s saw the highest and most volatile natural gas prices and production in history. Advances in horizontal drilling, 3-D seismic imaging, and hydraulic fracturing made it highly profitable for firms to produce large quantities of shale gas. This period was also characterized by a shift in market structure. The U.S. natural gas market was historically defined by large firms, but a large number of small firms began entering the market after 2000. While small firms made a negligible contribution to natural gas production during the shale gas boom, their entry may signal overcapitalization, productivity growth, and increased responsiveness of natural gas markets to exogenous shocks. We develop a real options model of market entry and exit and use data on natural gas drilling activity to test three potential explanations for small firm entry during the boom: 1. technological advances, 2. land lease speculation, and 3. regime change in natural gas prices. Our analysis provides mixed support for the first explanation but strong support for the last two.