Assessing the Degree of Spot Market Integration For U.S. Natural Gas: Evidence from Daily Price Data

This paper assesses the degree of market integration in the U.S. natural gas market following the FERC’s ‘open access’ reforms of the late 1980s. Daily spot prices at 76 market locations from 1993 to 1997 are used to examine (i) the geographic extent of the market, which depends on the extensiveness of LOOP equilibrium conditions throughout the pipeline network and (ii) the speed with which market forces move prices toward equilibrium in the face of ongoing price shocks. Our empirical results suggest that the East and Central regions form a highly integrated market, but that this market is quite segmented from the more loosely integrated Western market. Thus, although the FERC reforms have contributed towards national integration, limited physical connectivity between the West and the other regions leaves incomplete the agenda of creating a single national market for natural gas. ∗ Cuddington: Department of Economics, Georgetown University, Washington, D.C. 20057-1036, U.S.A. Email: [email protected]. Wang: Department of Economics, Monash University, Caulfield East, Victoria 3145, Australia. Email: [email protected] Assessing the Degree of Spot Market Integration For U.S. Natural Gas: Evidence from Daily Price Data