Preview

Modelling and Forecasting Natural Gas Prices

Satisfactory Essays
Open Document
Open Document
7596 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Modelling and Forecasting Natural Gas Prices
Financial Econometrics

Modeling and Forecasting Natural Gas Prices

Abstract
In this project we will model and forecast the natural gas prices over the short-term through the development of the Error Correction Model (ECM). This is presented as the best predictive model among various alternatives. To build this model, we gathered the oil prices to analyze the impact of the changes in these prices on the changes in natural gas prices. The results of the forecasting exercise, carried out using the US Natural Gas 3 Months Strips series, suggest that the forecasting approach can be used to obtain a performance measure for the price.
Key words: ARMA; ECM; Cointegration; Forecasting; Natural Gas Prices; Oil Prices.
JEL Classification: G17

Index
1- Introduction – The Natural Gas ............................................................................................................... 3
2- Theoretical Framework ............................................................................................................................ 4
3- Empirical Model ....................................................................................................................................... 5
3.1- Methodology – the data .......................................................................................................... 5
3.2- The Model ................................................................................................................................ 6
3.2.1- Testing for non-stationarity..................................................................................... 6
3.2.2- Modeling ................................................................................................................ 12
3.2.3- Introduction of the Erros Correction Model (ECM) ............................................. 13
3.2.4- Selection of the Lags


References: BACHMEIER.L. & GRIFFIN.J, (2006), Testing for market integration: crude oil, coal, and natural gas, The Energy Journal 27(2). BARNHART & SZAKMARY (1991), Unit root and cointegration tests on the efficiency and biasedness of forward exchange rates, Journal Of Economics and Finance Volume 17, Number 2. BROWN.S., (2003), U.S. Natural Gas Prices Heat Up, Southwest Economy, the Federal Reserve Bank of Dallas, September/October. BROWN.S.P.A & YÜCEL.M.K., (2007), What drives natural gas prices?, The Energy Journal, International Association for Energy Economics, vol COPELAND. L.S, (1991), Cointegration Tests with Exchange Rate Data, Oxford Bulletin of Economics and Statistics,Volume 53, Issue 2. ENGLE. R.F & GRANGER.C.W.J, (1983), Co-Integration and Error Correction: Representation, Estimation, and Testing, Econometrica, Vol GHOSH.A.(1993),Cointegration and error correction models: Intertemporal causality between index and futures prices, Journal of Futures Markets, Volume 13, Issue 2. GRANGER. C.W.J. (1981), Some Properties of Time series Data and their use in Econometric Model Specification, Journal of Econometrics 16, U.S.A,. GRANGER.C.W.J., et.all, (1990), Treasury Yield Curves and Cointegration, University of California, San Diego Discussion Paper, Number 90-24, July. HALL.A. et.all (1992), Cointegration Analysis of Treasury Bill Yields, The Review of Economics And Statistics Vol. 74, No HARTLEY.P, (2007), The relationship between crude oil and natural gas price, The James A. Baker III Institute For Public Policy and McKinsey & Company. NWACHUKWU.T & EGWAIKHIDE .F (2007), Error-Correction Model of the Determinants of Private Saving in Nigeria, A Paper presented at the African Economic Society (AES) Conference, Cape Town, South Africa, July. VILLAR. J & JOUTZ. F, (2006), The Relationship Between Crude Oil and Natural Gas Prices, Energy Information Administration, Office of Oil and Natural Gas YÜCEL.M.K. & BROWN.S.P.A, (1994), Fuel Taxes and Cointegration of Energy Prices,Contemporary Economic Policy, 12(3).
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Better Essays

    Bus308: Statistics for Managers - Final Paper
    • 1062 Words
    • 5 Pages

    Bus308: Statistics for Managers - Final Paper

    We at the delivery company have put together a data set to help report on the effects of this situation. We began by compiling average gas price by month and year. The yearly values were then used to create a scatter plot so that we could see the price differentials in a visual format. Then, a linear regression line was added to show the increase throughout the years in a linear fashion, thereby helping us determine where the prices will average out to in the years to come.…

    • 1062 Words
    • 5 Pages
    Better Essays
    Read More
  • Better Essays

    Business 308 Statistics for Managers
    • 1197 Words
    • 5 Pages

    Business 308 Statistics for Managers

    Moshiri, S., & Foroutan, F. (2006). Forecasting nonlinear crude oil futures prices. The Energy Journal, 27(4), 81-95. Retrieved from http://search.proquest.com/docview/222031427?accountid=32521…

    • 1197 Words
    • 5 Pages
    Better Essays
    Read More
  • Powerful Essays

    Oil Drilling and Gas Extraction Industry in the US Analysis
    • 1249 Words
    • 5 Pages

    Oil Drilling and Gas Extraction Industry in the US Analysis

    Natural gas production accounts for 41.6% of industry revenue in 2012. Prices in natural gas reached a 10-year low in April this year, but have erupted by more than 70% since (Hargreaves, 2012). Natural gas has seen an abundantly large output due to recent discoveries of natural gas in the Appalachian Basin;…

    • 1249 Words
    • 5 Pages
    Powerful Essays
    Read More
  • Good Essays

    Week 1 Eco 365
    • 635 Words
    • 3 Pages

    Week 1 Eco 365

    According to Glantz (2012), the utilities derived from the article have to do with the way the community consumes the oil that is being used. When the gas prices are up there is a necessity for the oil or fuel and it will most likely cause the prices to go down. In contrast, when the prices of the oil go down, there will be more of a demand and a possible shortage of oil because the demand would have been great.…

    • 635 Words
    • 3 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Arctic Development Geofactsheet
    • 2314 Words
    • 14 Pages

    Arctic Development Geofactsheet

    changes as a result of the rising world price of oil and gas (Fig. 1). In…

    • 2314 Words
    • 14 Pages
    Satisfactory Essays
    Read More
  • Powerful Essays

    Fracking for Natural Gas
    • 5187 Words
    • 21 Pages

    Fracking for Natural Gas

    Energy Information Administration. (2000). U.S. Crude Oil, Natural Gas Liquid Resources, 1999 Annual Report. New York: DOE/EIA-0216…

    • 5187 Words
    • 21 Pages
    Powerful Essays
    Read More
  • Good Essays

    The Impact of Ethics in Rising Gas Prices
    • 525 Words
    • 3 Pages

    The Impact of Ethics in Rising Gas Prices

    Today gas prices are on the rise. Most Americans are wondering why. The gasoline inventories fell for the fourth consecutive week and were 6% lower than two years ago, and partly are because of the imports and refinery maintenance, according to the Energy Department. Several reasons affecting supply. The refinery turnaround season is when refineries shut down or scale back to do necessary maintenance which is done in early spring and late fall. This time period provides a combination of moderate weather and off peak gasoline demand. The results of all this is that it lowers the available supply of gasoline as the driving season begins to pick up. With the lower supply + higher demand = higher prices.…

    • 525 Words
    • 3 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    To Drill or Not to Drill
    • 550 Words
    • 3 Pages

    To Drill or Not to Drill

    Over the past 40 years, investment decisions have been made by the United States based on such events that have affected the oil industry. The recent increase of oil prices has affected the economy negatively. In the 1970’s, oil prices stayed around $20 a barrel. In 1946, the average cost for a barrel of oil was around $1.60 compared to $96.80 in 2008. (Williams, 2008) The change in the US dollar is another cause for the fluctuating prices in oil demand. The need and demand for oil is leaving us dependent on other countries such as Libya, Nigeria, Iran, Iraq, and Venezuela.…

    • 550 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    To Dril or Not to Drill
    • 674 Words
    • 3 Pages

    To Dril or Not to Drill

    The high fuel prices, home disclosures, unemployment, food prices, and wars favors oil drilling. In 2008 57% favored offshore drilling with less environment concern and more safety measures in place, and computer controlled data for oil companies to prevent disasters. Consequently, the U.S. is the 3rd largest oil producer and oil imports connected to the trade deficit. Political decisions affect the U.S. because the U.S. needs other countries oil. As a result, drilling in Alaska have impact on speculation on the oil investment in needing more oil for the U.S. . (Baird, 2012)…

    • 674 Words
    • 3 Pages
    Good Essays
    Read More
  • Powerful Essays

    Interest Rate Pass-Through
    • 13119 Words
    • 53 Pages

    Interest Rate Pass-Through

    Im, K. S., Pesaran, M. H. and Shin, Y. (2003): Testing unit roots in heterogeneous panels, Journal of Econometrics, 115, 53-74. James, C.M. and C.W. Smith, (1994): Studies in Financial Institutions: Commercial Banks. New York: McGraw Hill, (JS) Kao, C. [1999]: Spurious regression and residual-based tests for cointegration in panel data, Journal of Econometrics, 90, 1-44. Levin, A.., Lin, C-F. and Chu, C-S. J. (2002): Unit root tests in panel data: asymptotic and finite sample properties, Journal of Econometrics, 108, 1-24 Lowe, P. and T. Rohling (1992): Loan Rate Stickiness: Theory and Evidence, Research Discussion Paper, Reserve Bank of Australia. Móré, Cs. and M. Nagy (2003): Relationship between Market Structure and Bank Performance: Empirical Evidence for Central and Eastern Europe, MNB Working Paper 2003/12. Mester, L. J. and A. Saunders (1995): When does the prime rate change, Journal of Banking and Finance 19, No. 5. Mojon, B. (2000): Financial structure and the interest rate channel of ECB monetary policy, ECB Working Paper, No. 40. Pesaran, H. M., Y. Shin (1997): An autoregressive distributed lag modelling approach to cointegration analysis, in: Strom, S., P. Diamond (eds.): Centennial Volume of Ragnar Frisch, Cambridge University Press. Stiglitz-Weiss, (1981): Credit Rationing in Markets with Imperfect Information, American Economic Review, 71 (3). Sander, H. and Kleimeier, S. (2002): Asymmetric adjustment of commercial bank interest rates in the Euro area: An empirical investigation into interest rate pass-through, Kredit und Kapital, 35, 161-192. Sander, H. and Kleimeier, S. (2003): Convergence in Eurozone Retail Banking? What interest rate pass-through tells us about Monetary Policy Transmission, Competition and Integration? LIFE Working Paper No. 03-009. Szegedi, R. (2002): Kötelező jegybanki tartalékolás Magyarországon 1987-2002, (The required reserve in Hungary 1987-2002) Bankszemle 2002/6. Várhegyi, É. (2003): Bankverseny Magyarországon (Banking competition in Hungary), Közgazdasági Szemle, 12, 1027-1048. Világi, B. and Vincze, J. (1995): A kamatláb transzmissziós mechanizmus Magyarországon (1991-1995) (Interest rate transmission mechanism in Hungary (1991-1995)), Bankszemle, 1995/5. Weth, M. A. (2002): The pass-through from market interest rates to bank lending rates in Germany, Economic Research Centre of the Deutsche Bank, Discussion Paper, No. 11/02. MNB (2003): Report on financial stability http://english.mnb.hu/Engine.aspx?page=mnben_stabil&ContentID=0 (2003/2),…

    • 13119 Words
    • 53 Pages
    Powerful Essays
    Read More
  • Good Essays

    PhD thesis
    • 311 Words
    • 2 Pages

    PhD thesis

    One of the consequences of this shale boom has been the uncoupling of the WTI and Brent Global benchmarks. With so much oil production suddenly coming online the US pipeline infrastructure was not built to handle such massive amounts. As a result a supply glut ahs been formed at Cushing, Oklahoma – the delivery point of US energy futures contracts. With an excess of supply being present in the North American market, the price of WTI has rapidly fallen and it now trades at a discount of around 15 dollars to the Brent global benchmark. The discount has even risen to 25 dollars at times owing to different factors driving further disparity between the two benchmarks.…

    • 311 Words
    • 2 Pages
    Good Essays
    Read More
  • Powerful Essays

    Relationship Between Gold, Oil and Us Stock Market
    • 1612 Words
    • 7 Pages

    Relationship Between Gold, Oil and Us Stock Market

    References: Hamilton, J.D, 1983,”Oil and the Macro economy since World War II”, Journal of Political Economy, Vol. 91, pp 228-248…

    • 1612 Words
    • 7 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    CASE STUDY: THE EFFECTS OF NATURAL DISASTERS ON THE GDP OF THE PHILIPPINES
    • 7269 Words
    • 227 Pages

    CASE STUDY: THE EFFECTS OF NATURAL DISASTERS ON THE GDP OF THE PHILIPPINES

    Bibliography: Abdelkha, S., Sulaiman, J., & Mohd, S. (2011). A Bounds Testing To Cointegration: An…

    • 7269 Words
    • 227 Pages
    Powerful Essays
    Read More
  • Better Essays

    Oil Price Analysis
    • 3265 Words
    • 9 Pages

    Oil Price Analysis

    It’s easy to curse and moan when gas seems expensive. The oil companies are abusing the helpless customers who are effectively indentured to them, and can name their own prices thanks to a system of collusion and profiteering. Something, probably involving legislation, ought to be done.…

    • 3265 Words
    • 9 Pages
    Better Essays
    Read More
  • Powerful Essays

    Risk Management and Price Volatility
    • 1749 Words
    • 7 Pages

    Risk Management and Price Volatility

    Price volatility is the “Sustained, unpredictable price movements that frustrate the economics of high-load-factor use of natural gas in industrial, chemical, and power-generation applications (on the upside), or frustrate the organized, sustained growth of deliverability from domestic onshore unconventional resources.”(Task Force on National Gas Stability, 2010) These Erratic and Unpredictable changes in prices and the dominant reliance of the economy on crude create concern, uncertainty and indirect cost to the economy. This affect decision making and in other to manage the concerns, uncertainty and indirect cost that are associated with the oil and gas markets, Risk management is introduced.…

    • 1749 Words
    • 7 Pages
    Powerful Essays
    Read More

Related Topics