Leading and lagging natural gas markets between Asia and Europe

This study investigates the dynamic relationship between Asian and European natural gas markets. The present study determines whether these markets underwent structural changes following i) the emergence of swing suppliers (Russia and Qatar) who export natural gas to both Asian and European markets, ii) substantial increases in Japan's gas import after the 2011 Great East Japan earthquake and iii) fast-paced increases in China's gas import from Russia; its import increased significantly in 2011 and thereafter. We attempt to identify changes in the dynamic price process between these two markets and also in the long-run equilibrium, by applying the price discovery framework (Vector Error Correction model). Main findings are i) Asian and European natural gas markets are cointegrated over the sample period (2000-2017) and ii) Asian market was leading the natural gas market, but after 2011, European market became the leader. Asian market is the major adjuster following the market shock which implies that any changes in European market would be transferred to Asian market. Results have implications for industry and policy analyses, and price risk management in the market.