There is an increasing move by developing and emerging economies to address their environmental issues. In the last few decades, we have witnessed an unprecedented state of global warming. Many scientists have argued that increasing carbon dioxide (CO2) emissions produce a massive build-up of greenhouse gas, which significantly contributes to warming global temperatures and associated climatic instability (IPCC, 1996). Some countries have signed to the Kyoto protocol in a bid to follow guidelines in reducing their emission levels by investing in infrastructure under the Clean Development Mechanism (CDM).

This paper is the first attempt to investigate: (i) is the crude oil (WTI) price significantly related to the regional ethylene prices in the Naphtha intensive ethylene markets of the Far East, North West Europe, and the Mediterranean? (ii) What drives the regional ethylene prices? The paper is motivated by the recent and growing debate on the lead-lag relationship between crude oil and ethylene prices. Our findings, based on the long-run structural modelling approach of Pesaran and Shin, and subject to the limitations of the study, tend to suggest: (i) crude oil (WTI) price is cointegrated with the regional ethylene prices (ii) our within sample error-correction model results tend to indicate that although the ethylene prices in North West Europe and the Mediterranean were weakly endogenous, the Far East ethylene price was weakly exogenous both in the short and long term. These results are consistent, during most of the period under review (2000.1–2006.4) with the surge in demand for ethylene throughout the Far East, particularly in China and South Korea. However, during the post-sample forecast period as evidenced in our variance decompositions analysis, the emergence of WTI as a leading player as well, is consistent with the recent surge in WTI price (fuelled mainly, among others, by the strong hedging activities in the WTI futures/options and refining tightness) reflecting the growing importance of input cost in determining the dynamic interactions of input and product prices.

A ‘methanol economy’ based mainly on natural gas as a feedstock has a lot of potential to cope with the current and ongoing concerns for energy security along with the reduction of CO-2 emissions. It is, therefore, important to examine the price dynamics of methanol in order to ascertain whether the price of methanol is mainly natural-gas-cost driven or demand driven in the context of different regions. This paper is the first attempt to investigate the following: (i) is the natural gas price significantly related to the regional methanol prices in the Far East, United States and Europe? (ii) who drives the regional methanol prices? The paper is motivated by the recent and growing debate on the lead-lag relationship between natural gas and methanol prices. Our findings, based on the most recently developed ‘long-run structural modelling’ and subject to the limitations of the study, tend to suggest: (i) natural gas price is cointegrated with the regional methanol prices, (ii) our within-sample error-correction model results tend to indicate that natural gas was driving the methanol prices in Europe and the United States but not in the Far East. These results are consistent, during most of the period under review (1998.5–2007.3), with the surge in demand for methanol throughout the Far East, particularly in China, Taiwan and South Korea, which appears to have played a relatively more dominant role in the Far East compared to that in Europe and the United States within the framework of the dynamic interactions of input and product prices. However, during the post-sample forecast period as evidenced in our variance decompositions analysis, the emergence of natural gas as the main driver of methanol prices in all three continents is consistent with the recent surge in natural gas price fueled mainly, among others, by the strong hedging activities in the natural gas futures/options as well as refining tightness (similar to those that were happening in the crude oil markets).

Saudi Arabia ranks sixteenth among nations based on 2002 fossil-fuel carbon-dioxide emissions per capita. Even though Saudi Arabia is the world's largest exporter of oil, not suprisingly consumption of petroleum products represents the bulk of the country's fossil-fuel emissions is from electricity generation. Use of natural gas increasingly has become important since the mid-1980s and in 2008 accounts for 31.3 percent of total fossil-fuel carbon-dioxide emissions.