Natural Gas Market Integration in Germany Ge a y Christian Growitsch Rabindra Nepal p Marcus Stronzik Infraday, October 2009 0
Agenda 1. Motivation 2. Previous Literature 3. Methodology 3. Methodology 4. Data 5 5. Empirical Results E i i l R lt 6. Conclusions 1
Motivation • EU Regulatory Framework - Acceleration Directive in 2003 - Third legislative energy & gas package in 2007 Third legislative energy & gas package in 2007 � EU working towards a single market for natural gas • Regulation in Germany - German Energy Law (Energiewirtschaftsgesetz) in 2005 - Introduction of an Entry-Exit-System in October 2007 - German energy regulator aims at reducing number of Entry- German energy regulator aims at reducing number of Entry Exit-Zones (and trading hubs) to one single for high caloric (H-) natural gas and one for low caloric (L-) natural gas 2
Motivation • Development and present situation - Number of Entry-Exit Zones reduced from 19 (2007) to 6 (October 2009) - Potentially liquid high-caloric natural gas trading hubs • ‘Net Connect Germany’ (NCG) - Bayernets + E.ON Gastransport - since October 1st 2008 • ‘Gaspool’, until October 1st: ‘GUD’ - Gasunie Deutschland + Dong + StatoilHydro - established August 2006 - since October 1st 2009: also ONTRAS + WINGAS 3
Motivation • Development and present situation (ctd.) - July 1st 2008: Dutch Gasunie acquires BEB Transport and forms GUD - July 1st 2007: European Energy Exchange EEX starts trading of NCG and GUD spot markets - EEX EEX natural gas wholesale trading t l h l l t di • Prices for NCG and GUD trading points • NCG is more liquid than GUD NCG i li id h GUD • Churn-Rate: NCG ≈ 1.5 (vs. NBP ≈ 10) • Transmission network: hardly any free capacity (“red lights”) T i i t k h dl f it (“ d li ht ”) 4
Motivation R Research Question h Q ti • Effect of the Entry-Exit-System on the competitiveness of the German natural gas wholesale market t l h l l k t • Measurement of competitiveness: Analysis of price development to identify level of market integration identify level of market integration - Price cointegration - Price convergence Price convergence • Comparison of NCG and GUD - Price development within Germany • Dutch hub Title Transfer Facility (TTF) as competitive benchmark - Market integration of Germany and the Netherlands 5
Previous Literature • USA - Walls (1994): Cointegration analysis of natural gas prices at different citygates - Ripple (2001): Cointegration analysis of U S West Coast and Gulf Ripple (2001): Cointegration analysis of U.S. West Coast and Gulf Coast as well as Asia - King/Cuc (1996): Analysis of U.S. spot price applying Kalman Filter • Europa - Asche et al. (2001): Cointegration analysis of Belgium, France and Germany - Neumann et al. (2005): Kalman Filter Analysis of spot market prices at Zeebrügge and NBP, considering natural gas flows in the Interconnector Interconnector � Increasing market integration over time 6
Methodology • Competitive Benchmark - Homogenous goods should have identical prices if markets are efficient (Law of one Price) - Price differences should only reflect transportation and transaction costs in the long run • Markets are economically integrated markets if prices are cointegrated • Methods - Cointegration Analysis following Johansen (1988) - Kalman Filter (Kalman 1960) Kalman Filter (Kalman, 1960) 7
Methodology Kalman Filter Kalman Filter • Johansen Test: weaknesses - Cointegration vector constant over time - Cointegration dynamics not considered - Limited explanatory power for • Short observation periods p • Structural or institutional changes • Application of Kalman Filter pp - Allows for a time-varying integration relation - Uncovers price formation dynamics Uncovers price formation dynamics 8
Methodology Kalman Filter Kalman Filter • Consider a price relationship between two markets X and Y = α + β + ε P P , , , , X t XY t XY t Y t t - α XY,t : transaction and transportation costs between markets X and Y p XY,t - β XY,t : intensity of price relationship across the markets with constant α • Recursive estimation of β Recursive estimation of β β = β + θ − 1 , , XY t XY t t • • if markets X and Y are fully integrated we expect that if markets X and Y are fully integrated, we expect that { ( ) } − = α - lim P P → ∞ t X Y XY { } 1 β = - lim → ∞ t XY 9
Data • Day ahead Preise (logs) - Net Connect Germany (NCG): EEX - - Gasunie Deutschland (GUD): EEX Gasunie Deutschland (GUD): EEX - Title Transfer Facility Hub (TTF): energate • Daily day-ahead prices • Timeframe - October 1st 2007 – April 30th 2009 - Starting with the introduction of the Entry-Exit System Starting with the introduction of the Entry Exit System - No reliable price information for earlier periods 10
Data 3.6 3.4 3 2 3.2 3.0 2.8 2.6 2.4 2.2 2.2 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 LGUD LNCG LTTF 11
Empirical Results Preliminaries Preliminaries • Unit Root - ADF and KPSS - - Time-series are I(1) Time-series are I(1) • Granger Causality Test - GUD granger causes NCG - TTF granger causes NCG - GUD and TTF granger cause each other - - results indicate a stronger integration of GUD and TTF than results indicate a stronger integration of GUD and TTF than of NCG and TTF 12
Empirical Results Cointegration Cointegration Johansen-Test Vari- H 0 H 1 Maximum Critical p-value Trace Critical p-value ables eigenvalue value statistics value ( λ ( λ max ) ) ( %) (5%) ( λ ( λ trace ) ) ( %) (5%) GUD r = 0 r = 1 34.46 14.26 0.000 35.58 15.49 0.000 TTF r ≤ 1 r = 2 1.13 3.84 0.288 1.13 3.84 0.288 NCG r = 0 r = 1 41.86 14.26 0.000 42.85 15.49 0.000 TTF r ≤ 1 r = 2 0.99 3.84 0.319 0.99 3.84 0.319 GUD r = 0 r = 1 34.56 14.26 0.000 35.29 15.49 0.000 NCG r ≤ 1 r = 2 0.74 3.84 0.391 0.74 3.84 0.391 • Pairwise cointegration of prices • Long-run equilibrium with constant price difference • Differences can be attributed to transaction and transportation costs Differences can be attributed to transaction and transportation costs 13
Empirical Results Cointegration Cointegration Long-run coefficients g Variables β GUD GUD 1 000 1.000 TTF NCG 0.957 TTF TTF GUD 0.96 NCG • Full market integration between GUD and TTF • Strong cointegration also between other prices Strong cointegration also between other prices • Confirms Granger-Test results 14
Empirical Results Tests for structural breaks Tests for structural breaks • Reasons - Dynamic regulatory environment - - Mergers of Entry-Exit Zones Mergers of Entry-Exit Zones � Hypothesis: β not constant over time • Cumulative Sum of Squares (CUSUM) Test � Indicates structural breaks • Chow-Test: significant structural breaks at - July 1st 2008: Take-over of BEB by Gasunie July 1st 2008: Take over of BEB by Gasunie - October 1st 2008: Bayernets and E.ON merge to NCG 15
Empirical Results Kalman Filter Kalman Filter GUD and NCG GUD and NCG 1.2 Announcement of NCG Announcement of NCG 1.1 Start of NCG 1.0 0.9 0.8 0.7 BEB take-over Price convergence convergence 0 6 0.6 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 State Vector ± 2 RMSE NCG NCG - GUD GUD 16
Empirical Results Kalman Filter Kalman Filter GUD and TTF GUD and TTF 1.3 1 2 1.2 BEB take-over 1.1 1.0 0.9 0.8 full integration full integration 0.7 0.6 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 State Vector ± 2 RMSE LGUD - LTTF 17
Empirical Results Kalman Filter Kalman Filter NCG and TTF NCG and TTF 1.3 1 2 1.2 Announcement of NCG 1.1 1.0 0.9 0.8 0.7 BEB take-over β =0.96 0.6 0.5 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 State Vector ± 2 RMSE LNCG - LTTF 18
Conclusions • Increasing integration of the three natural gas markets Net connect G Germany, Gasunie Deutschland und Title Transfer Facility Hub G f • GUD and TTF seem to be a single market (with Gasunie being joint owner) joint owner) • NCG follows GUD/TTF being fairly integrated • Structural changes tend to cause short-run desintegration Structural changes tend to cause short run desintegration • German regulatory quest of achieving full market integration seems to be achievable also with two German hubs 19
WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH Postfach 2000 Postfach 2000 53588 Bad Honnef Deutschland Tel +49 (0) 2224-9225-88 Tel +49 (0) 2224 9225 88 Fax +49 (0) 2224-9225-68 eMail c.growitsch@wik.org www. wik. org www. wik. org
Recommend
More recommend
