The forward-spot spread in the natural gas market : an empirical investigation of Henry Hub and NBP
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- Master Thesis 
This study analyses forward-spot relationships at two of the world’s largest hubs for natural gas (Henry Hub and NBP). We find that spot and forward prices are covariance-stationary. Testing the theory of storage shows that inventories are highly significant in explaining the basis. In particular, we find evidence of a positive cost-of-carry in both markets. Furthermore, in both markets, forward prices have on average exceeded subsequent spot prices. Under the assumption of rational expectations, this indicates a negative risk premium. In fact, the premium appears to be time-varying. Finally, expected inventories at a contract’s maturity seem to be a more important determinant of the risk premium than the contractual length in the UK.