The link between liquefied natural gas prices and its policy implications-the case of high importing dependency Asian countries

It is crucial to evaluate integration issues for Asian liquefied natural gas (LNG) markets because importers now have some chance to adjust the pricing mechanisms. The purpose of this study is to examine the price integration between high-importing-dependency Asian LNG importers (Japan, Korea, and T...

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Bibliographic Details
Published in:Energy sources. Part B, Economics, planning and policy Economics, planning and policy, 2017-01, Vol.12 (4), p.377-386
Main Authors: Ko, Fu-Kuang, Chai, Hui-Chih
Format: Article
Language:English
Subjects:
Adjustment
Asian
Economics
Energy price
JEL Q41
Liquefied natural gas
Markets
nonlinear cointegration
Nonlinearity
Policies
smooth transition regression
structural change
Time series analysis
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Summary:It is crucial to evaluate integration issues for Asian liquefied natural gas (LNG) markets because importers now have some chance to adjust the pricing mechanisms. The purpose of this study is to examine the price integration between high-importing-dependency Asian LNG importers (Japan, Korea, and Taiwan). Considering the global economic crisis and LNG trading features, this study applied the smooth transition regression (STR) model and the nonlinear cointegration test to explore the long-run price relationship. This study indicates the limitation of the linear model in testing the LNG market integration. Furthermore, empirical results of this study suggest nonlinear cointegrations exist and show evidence of a smooth transition in the long-run price relationships, but do not support the law of one price (LOP). In terms of policy implications, this study's findings indicate that a mechanism for facilitating information transmission and market adjustment in Asian LNG markets is needed.
ISSN:1556-7249
1556-7257
DOI:10.1080/15567249.2016.1141265