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Measuring and Assessing the Evolution of Liquidity in Forward Natural Gas Markets: the Case of the UK National Balancing Point

de Menezes, L. M. ORCID: 0000-0001-9155-5850, Russo, M. and Urga, G. (2019). Measuring and Assessing the Evolution of Liquidity in Forward Natural Gas Markets: the Case of the UK National Balancing Point. The Energy Journal, 40(1), pp. 143-169. doi: 10.5547/01956574.40.1

Abstract

Following the development of natural gas trading hubs in Europe, forward products have become a response to the higher exposure to price risk faced by energy companies. Yet, a significant share of trade occurs over-the-counter (OTC), where inter-dealer brokers act as intermediaries and deals may be customized. Hence, there are concerns about transparency and market quality, of which liquidity is a main indicator. This study investigates liquidity in the largest one-month-ahead European forward market for natural gas in the period from May 2010 to December 2014, using asynchronous high-frequency data and time-varying measures of spread and price impact from the financial market microstructure literature. The usefulness of these measures in the seasonal and evolving National Balancing Point (NBP) is assessed and different aspects of liquidity and transaction costs are unveiled.

Publication Type: Article
Additional Information: This is the accepted version of an article which appears in The Energy Journal Reproduced by permission of the International Association for Energy Economics (IAEE).
Publisher Keywords: Liquidity measures, natural gas markets, over-the-counter trading, time-varying modeling
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Departments: Cass Business School > Management
URI: http://openaccess.city.ac.uk/id/eprint/20991
[img] Text - Accepted Version
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