Semester

Spring

Date of Graduation

2020

Document Type

Dissertation

Degree Type

PhD

College

Davis College of Agriculture, Natural Resources and Design

Department

Agricultural and Resource Economics

Committee Chair

Xiaoli Etienne

Committee Member

Alan Collins

Committee Member

Bingxin Li

Committee Member

Peter V. Schaeffer

Abstract

This dissertation consists of three essays that explore empirical issues concerning energy prices in the United States. In particular, it analyzes the price transmission within and across different energy markets and their interactions with the overall economy. The first essay evaluates the dynamic spatial integration in the U.S. natural gas market and the relative importance of each location in the overall price discovery process. I show that the regional natural gas market is on average well-integrated in both the short- and long-runs, although market integration has declined over the past few years due to pipeline capacity constraints in an increasingly oversupplied market. In the second essay, I evaluate the effect of economic policy uncertainty on the volatility pattern in U.S. crude oil and natural gas markets, as well as how this relationship has changed in an era of abundant market supply. Natural gas and crude oil present heterogeneous volatility regimes (i.e., high vs. low volatility), in which the volatility persistence for crude oil is similar during the pre- and post-shale era, while natural gas presented significant regime changes. Economic policy uncertainty exerts a positive and significant effect on the likelihood of the high-volatility regime for both markets. However, the effect has declined after 2010, possibly reflecting the large and more efficient production of fossil fuels in the country which allows producers and investors to respond more rapidly to market shocks. Finally, the third essay revisits three important open questions in the energy economics literature, namely, the “decoupling” of crude oil and natural gas prices, the mixed relationship between natural gas and electricity prices, and the “rockets and feathers” effect between crude oil and petroleum product prices. Empirically, I analyze the directional price return predictability between various energy markets at different quantiles of their respective price return distributions. I find positive and significant spillover effects from crude oil to natural gas during bearish market conditions, which have weakened after 2013, suggesting a possible “delink” between the two markets in recent years. For the relationship between natural gas and electricity price returns, results suggest a bi-directional spillover at moderate and high return quantiles. In recent years, the two markets appear to have become more correlated during bearish market conditions, reflecting the increasing importance of natural gas as an input to produce electricity and the transition of natural gas from peak load to baseload power sources. Finally, no evidence is found for the “rockets and feathers” effect from crude oil to either gasoline or heating oil market.

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