The relationship between the brent crude oil and the national balancing point natural gas prices

Abstract

The European Union formed a strategy with the Energy Union towards the delivery of secure, competitive, and sustainable energy. The Energy Union targets at a fully integrated internal energy market, which requires infrastructure, leaving market fundamentals to drive energy pricing. The European Union swifts to natural gas as its primary energy source. So far the natural gas supply has been conducted via inter-state pipelines and priced through oil-indexed contracts. In our research, we study whether there are price spillovers from oil to natural gas, and vice versa. This paper studies the oldest gas virtual trading point in Europe, National Balancing Point. It is considered as one of the most liquid and transparent gas markets. In order to fully cover every aspect, we use Wald tests, cointegration tests, asymmetric price transmission methodology, and Diebold and Mariano tests. We reach conclusions on commodities’ independence and we present their time varying relationship.