Determinants of Natural Gas Prices in the United States – A Structural VAR Approach

Abstract

This study examines the dynamic economic relationships between the fundamental variables that influence natural gas prices within the U.S. market. We utilize a structural vector autoregressive (VAR) and Markov switching models to investigate the impact and stability of regime switches between the main drivers of natural gas prices. The results reveal that the U.S. gas market is sensitive to temperature deviations in the short term. Crude oil and coal prices have long-run effects on natural gas prices, emphasizing energy-specific demand shocks. Mainly, coal prices determine about 73% of gas price variability for the sample period with three discernable regime switches.