THE EFFECT OF SUPPLY AND DEMAND SHOCKS ON THE U.K. NATURAL GAS PRICE VOLATILITY

摘要

Using daily data for the U.K. wholesale gas market, this paper examines the relationship between daily shocks in U.K. disaggregated gas demand and supply, and the gas spot price volatility using impulse response functions from a vector autoregressive model. The impulse response functions suggest that two elements seem to be the major disaggregated supply or demand shocks affecting spot price volatility. First, volatility is negatively associated with increased flows from underground storage facilities, indicating that these facilities have a primary role in regulating U.K. natural gas price volatility. Furthermore, volatility is positively associated with shocks in the demand for gas from the power sector, suggesting that there might be a spillover effect from the power market.