The impact of the North American shale gas revolution on regional natural gas markets: Evidence from the regime-switching model

• Published in: Energy policy Vol. 96; pp. 167 - 178
• Main Authors: Geng, Jiang-Bo, Ji, Qiang, Fan, Ying
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01.09.2016; Elsevier Science Ltd
• Subjects: Crude oil; Crude oil prices; Energy industry; Energy policy; Europe; Impact analysis; Investment strategy; Investments; Markets; Markov analysis; Markov chains; Natural gas; Natural gas industry; Natural gas market; North America; Oil; Oil shale; Petroleum; Price spreads; Prices; Production; Regime-switching model; Shale; Shale gas; Shale gas revolution; Spreads; Studies; Switching; Trade; North America; Europe; Price spreads; Regime-switching model; Natural gas market; Shale gas revolution
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2016.05.047

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 upward' 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 time-frame 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. •Impact of shale gas revolution on Henry Hub and NBP price movement regime is analysed.•Impact of revolution on relationship between oil and regional gas price is identified.•Revolution changes Henry Hub movement regime, having minor impact on NBP regime.•Clear seasonal fluctuation of Henry Hub prices has disappeared since the revolution.•Henry Hub has decoupled from WTI, while NBP and Brent exhibit long-term equilibrium.