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Question: Why did the price of natural gas in the United States suddenly diverge from the price in Europe and Japan around 2008?

05 Oct 2022,10:28 PM

 

1.Why did the price of natural gas in the United States suddenly diverge from the price in Europe and Japan around 2008? In order to answer this question you will need to explain what was keeping those prices so correlated before 2008! After all, you have seen that prices in different parts of Texas can diverge, so why did three separate continents have such correlated prices for so long?


2.Why does the price of crude oil correlate with the price of natural gas in Europe and Japan? Of course, your explanation needs to be consistent with the inconvient fact that natural gas prices and oil prices also correlated in the United States until 2008, when the relationship broke down.

- Useful hints:
The price of crude oil about the same all over the planet: it costs no more than $2 per barrel to transport the stuff anywhere. Gaps sometimes open up between the cost of oil in North America and in Europe
Ignore the giant spike in European gas prices in 2021. In fact, ignore everything after 2020! I included it so that you would have full information, but the pandemic, it's aftermath, and the war in Russia have made everything weird.

Expert answer

 

There are a number of reasons why the price of natural gas in the United States suddenly diverged from the price in Europe and Japan around 2008. One reason is that the production of natural gas in the United States increased dramatically during that time period, while production remained relatively flat in Europe and Japan. This increase in production led to a decrease in the price of natural gas in the United States, while prices remained high in Europe and Japan.

 

Another reason for this price divergence is that demand for natural gas was growing much faster in Asia than it was in the United States during this time period. This increased demand helped to drive up prices in Asia, while prices in the United States remained relatively low.

Finally, it is also worth noting that the price of natural gas is affected by a number of other factors, such as weather patterns and geopolitical factors. For example, colder weather in Europe and Japan can lead to increased demand for natural gas, which can drive up prices. Similarly, tensions in the Middle East can lead to disruptions in the supply of natural gas, which can also cause prices to increase.

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