Price modelling of natural gas for the EU-12 countries: Evidence from panel cointegration

Abstract

This study explores the relationship between the prices of natural gas, crude oil and taxation among selected EU-12 countries over the period of 2001-2012 on a quarterly basis. According to Ouedraogo (2013a), panel unit root, heterogeneous panel cointegration, panel fully modified and panel dynamic regression procedures are commonly employed empirical techniques for panel estimations. A significant long-run relationship between the prices of natural gas, crude oil and taxation was detected, which validates the hypothesis that there is a long-run equilibrium relationship between among them. The empirical results from both fully modified and dynamic panel regression tests also support the hypothesis that crude oil prices and taxation have significant impacts on natural gas prices within the EU-12 countries, which indirectly affects industrial production growth, electricity transformation, heating, cooling and the overall cost of living in the Eurozone. The findings of a common coefficient for panel causality deliver robust evidence of uni-directional relationships from crude oil prices and taxation toward natural gas prices. The results of individual coefficient for panel causality analysis reveal that there are hi-directional causalities among natural gas prices and taxation, crude oil prices and taxation and crude oil prices and natural gas prices with the EU-12. (C) 2015 Elsevier B.V. All rights reserved.