A1200
Title: Structural asymmetry in transatlantic gas markets: A regime-switching analysis of imported volatility
Authors: Hamidreza Abshenasan - Universidad Autonoma de Madrid (Spain) [presenting]
Prosper Lamothe Fernandez - Universidad Autonoma de Madrid (Spain)
Fernando Gallardo Olmedo - Universidad Autonoma de Madrid (Spain)
Abstract: Transatlantic natural gas integration has created a distinct structural asymmetry between regional markets. US liquefied natural gas (LNG) exports physically bridge the European and American hubs. Volatility spills backward across this connection, disproportionately impacting American storage valuations. To quantify this imported volatility, we deploy a dual-identification strategy utilizing Generalized and Orthogonalized Forecast Error Variance Decomposition (FEVD). This econometric approach decouples financial spillovers from physical flows. We integrate these outputs into a regime-switching real options valuation (ROV) model covering the 2016-2025 period. Our underlying analysis indicates high financial connectedness with a mean total connectedness index (TCI) of 14.78%. It also identifies a crisis inversion during periods of market stress. EU volatility drives US storage injections (Beta = -0.1098, p < 0.001). US physical flows do not drive EU prices, exhibiting a variance spillover below 2%. This asymmetry generates divergent asset economics. US storage facilities gain an 11.07% flexibility premium. EU mandate-driven assets yield a 1.52% premium. The statistical findings challenge standard market convergence theories. US policy should prioritize high-cyclability infrastructure to capture arbitrage opportunities. EU regulators should explicitly price storage rigidity into energy security mandates.
