PRICE CONVERGENCE ACROSS NATURAL-GAS FIELDS AND CITY MARKETS

This research reports the results of cointegration tests between natur al gas spot prices at various production fields, pipeline hubs, and ci ty markets. Cointegration between prices is evidence that spatial arbi trage is enforcing the law of one price across market locations. The r esults show that prices at certain city markets, Chicago and to a less er extent California, are cointegrated with prices at field markets. H owever, the prices at most other locations do not move in step with ga s prices in the field markers. Customer access to pipeline transportat ion, or competitive bypass, may explain why prices at some city market s are more responsive to production field prices than others.