Macroeconomic uncertainty and natural gas prices: Revisiting the Asian Premium

Xunpeng Shi and Yifan Shen*

Energy Economics, Volume 94, February 2021, 105081


Recommend reason

While macroeconomic uncertainty may influence natural gas prices, there is no investigation in the literature. This study shows macroeconomic uncertainty plays a vital role in determining natural gas prices. Decomposition of gas price by supply and demand factors helps to understand the “Asian Premium” phenomenon. Studying of uncertainty and natural gas pricing can inform the ongoing energy transition. The constructed proxies of macroeconomic uncertainty could be utilized in many other studies.

About the author

Xunpeng Shi, Australia-China Relations Institute, University of Technology Sydney, Australia

Yifan Shen, Department of Economics and Finance, School of Economics and Management, Tongji University (Corresponding Author)


Macroeconomic uncertainty, Drivers of commodity prices, Natural gas, Oil, Asian premium

Brief introduction

In this paper, we construct homogeneous macroeconomic uncertainty measures for three major natural gas markets and investigate the dynamic causal effects of macroeconomic uncertainty shocks on the formation of natural gas prices. We show that macroeconomic uncertainty plays a vital role in determining natural gas price variations, in addition to driving business cycle fluctuations in these economies. Compared to oil price, the uncertainty impact on gas pricing is relatively moderate but significant. Market-specific supply and demand analysis shows the drivers of gas prices are substantially different in three different markets, which helps to understand the “Asian Premium” phenomenon in the natural gas trade.