Publication on cointegration between gas and power spot prices.
Cyriel de Jong (KYOS), Stefan Schneider (EON)
In this paper we show how cointegration can be applied to capture the joint dynamic of multiple energy spot prices. For an example system we study the Title Transfer Facility, the Zeebrugge spot gas market and the National Balancing Point gas spot market, and, additionnally, the Amsterdam Power Exchange power spot market, since these markets are strongly connected in terms of physical transportation and generation of power from gas. We develop a cointegrating multi-market model framework that is able to plausibly connect different single-market spot price models. This is achieved by considering the mean-reverting spot-forward price spreads instead of spot prices only. Our analysis shows that the gas prices are strongly cointegrated, with a specific connection pattern for the markets, whereas cointegration of gas and power prices is at long-term forward price levels only.
This paper is based on methodologies that are implemented in KySim software. KySim can be used for creating Monte Carlo price simulations. Cointegration between various commodities can be optionally added. For more information about KySim, click here.
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