infonet-economy

This paper applies vector error correction models that show that oil and natural gasprices decoupled around 2009. Before 2009, US and UK gasprices had a long-term equilibrium with crude prices to which gasprices always reverted after exogenous shocks. Both US and UK gasprices adjusted to the crude oilprice individually, and departure from the equilibrium gasprice on one continent resulted in a similar departure on the other. After an exogenous shock, the adjustment between US and UK gasprices took approximately 20 weeks on average, and the convergence was mediated mainly by crude oil with a necessary condition that arbitrage across the Atlantic was possible. After 2009, however, the UK gasprice has remained integrated with oilprice, but the US gasprice decoupled from crude oilprice and the European gasprice, as the Atlantic arbitrage has halted. The oversupply from shale gas production has not been mitigated by North American export, as there has been no liquefying and export capacity.