Pipeline Access and Market Integration in the Natural Gas Industry: Evidence from Cointegration Tests

This research seeks to determine the extent to which the Federal Energy Regulatory Commission's policy of "Open Access" to natural gas pipelines has created competition in natural gas markets. We argue that recently developed cointegration techniques are the natural way to evaluate competition between natural gas spot markets at dispersed points in the national transmission network. We test daily spot prices between 190 market-pairs located in 20 producing fields and pipeline interconnections and find that the price series are not stationary and that most field markets were not cointegrated during 1987. By 1991, more than 65% of the markets had become cointegrated. The increased cointegration of prices is evidence that open access has has made gas markets more competitive.