Transportation corridors and cointegration of residential natural gas prices

Purpose – The US natural gas industry has gone through regulatory changes and consequently restructuring over the last 40 years, in an effort to be more market driven. The purpose of this paper is to present an economic analysis of price cointegration in the US natural gas industry as a result of industry restructuring. Design/methodology/approach – In particular, this paper tests if access to the same major pipeline transportation corridor translates to cointegration of residential natural gas prices. Findings – Results indicate a high degree of cointegration for States within the same transportation corridor and a greater percentage of State residential prices are cointegrated post the period of full wellhead deregulation (post 1993) versus the transitional period (1989‐1992). In fact, within the Southwest to Southeast transportation corridor, 100 percent of the price‐pairs examined were cointegrated. Originality/value – The paper shows that the combination open access as a result of restructuring, complemented with an expansive and integrated transportation and distribution network, have likely increased the overall efficiency in the industry.