Spatial Integration of Natural Gas Markets: a Literature Review
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Purpose of Review
The purpose of this paper is to clarify the definition of an integrated market and to provide a commented overview of the different empirical methodologies that have been proposed to assess the degree of spatial integration of natural gas markets.
In recent years, the methodologies assessing gas market integration have evolved from simple empirical works based solely on price data analyses to more complex ones based on the theoretical notion of spatial equilibrium capturing the effects of both price and non-price data.
A number of liberalization reforms have stimulated the emergence of spatially diverse markets for wholesale natural gas interconnected through spatial arbitrage, which plays a crucial role in the determination of local prices. In recent years, a vast and rapidly growing empirical literature has emerged to examine the degree of integration of these markets. A close examination of this literature has shown that only a handful of studies pay attention to the theoretical notion of market integration and account for the role played by trade flows, capacity constraints, and unit transaction costs.
KeywordsSpatial integration Law of one price Integration of gas markets Natural gas markets Market integration Price convergence
We are grateful to Ramteen Sioshansi and to two anonymous referees for a series of useful suggestions that helped us to improve the article.
Compliance with Ethical Standards
Conflict of Interest
Ekaterina Dukhanina and Olivier Massol declare no conflicts of interest.
Human and Animal Rights and Informed Consent
This article does not contain any studies with human or animal subjects performed by any of the authors.
Papers of particular interest, published recently, have been highlighted as: • Of importance •• Of major importance
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