Market efficiency, cross hedging and price forecasts: California's natural-gas markets

Chi-Keung WOO; A. Olson; I. Horowitz

doi:10.1016/j.energy.2005.05.003

Market efficiency, cross hedging and price forecasts: California's natural-gas markets

Chi-Keung WOO^*, A. Olson, I. Horowitz

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

19 Citations (Scopus)

Abstract

An extensive North American pipeline grid that physically integrates individual natural-gas markets, in conjunction with economic ties binding the California markets to those at Henry Hub, Louisiana and the New York mercantile exchange via an array of financial instruments, suggests that the spot prices at Henry Hub will impact those in California. We verify the suggestion via a partial-adjustment regression model, thus affirming that California traders can exploit the cross-hedging opportunities made available to them via market integration with Henry Hub, and that they can accurately forecast the price they will have to pay to meet future demand based solely on the price of futures at Henry Hub and the price of a California natural-gas basis swaps contract.

Original language	English
Pages (from-to)	1290-1304
Number of pages	15
Journal	Energy
Volume	31
Issue number	8-9
DOIs	https://doi.org/10.1016/j.energy.2005.05.003
Publication status	Published - Jul 2006

Scopus Subject Areas

Civil and Structural Engineering
Building and Construction
Pollution
Mechanical Engineering
Industrial and Manufacturing Engineering
Electrical and Electronic Engineering

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10.1016/j.energy.2005.05.003

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title = "Market efficiency, cross hedging and price forecasts: California's natural-gas markets",

abstract = "An extensive North American pipeline grid that physically integrates individual natural-gas markets, in conjunction with economic ties binding the California markets to those at Henry Hub, Louisiana and the New York mercantile exchange via an array of financial instruments, suggests that the spot prices at Henry Hub will impact those in California. We verify the suggestion via a partial-adjustment regression model, thus affirming that California traders can exploit the cross-hedging opportunities made available to them via market integration with Henry Hub, and that they can accurately forecast the price they will have to pay to meet future demand based solely on the price of futures at Henry Hub and the price of a California natural-gas basis swaps contract.",

author = "Chi-Keung WOO and A. Olson and I. Horowitz",

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AB - An extensive North American pipeline grid that physically integrates individual natural-gas markets, in conjunction with economic ties binding the California markets to those at Henry Hub, Louisiana and the New York mercantile exchange via an array of financial instruments, suggests that the spot prices at Henry Hub will impact those in California. We verify the suggestion via a partial-adjustment regression model, thus affirming that California traders can exploit the cross-hedging opportunities made available to them via market integration with Henry Hub, and that they can accurately forecast the price they will have to pay to meet future demand based solely on the price of futures at Henry Hub and the price of a California natural-gas basis swaps contract.

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Market efficiency, cross hedging and price forecasts: California's natural-gas markets

Abstract

Scopus Subject Areas

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