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

Chi Keung WOO, A. OLSON, I. HOROWITZ

Research output: Contribution to journalArticles

15 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. Copyright © 2005 Elsevier Ltd. All rights reserved.
Original languageEnglish
Pages (from-to)1290-1304
JournalEnergy
Volume31
Issue number8-9
DOIs
Publication statusPublished - Jul 2006

Citation

Woo, C. K., Olson, A., & Horowitz, I. (2006). Market efficiency, cross hedging and price forecasts: California's natural-gas markets. Energy, 31(8-9), 1290-1304. doi: 10.1016/j.energy.2005.05.003

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