Facebook LinkedIn Twitter
Shop

IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Oil Production in the Lower 48 States: Economic, Geological, and Institutional Determinants

Abstract:
In this paper, we establish an empirical model for oil production in the lower 48 states that represents its economic, physical, and institutional determinants. We estimate a vector error correction model for oil production in the lower 48 states that specifies real oil prices, average production costs, and prorationing by the Texas Railroad Commission. These modifications enable us to generate a model that accounts for most of the variation in oil production in the lower 48 states between 1938 and 1991. The result that oil production in the lower 48 states shares stochastic trends with real oil prices, average production costs, and prorationing indicates that accuracy of Hubbert's bell shaped curve is fortuitous. The importance of these factors also indicates why the basic Hotelling model cannot replicate the production path for oil in the lower 48 states. This inability is critical. The negative economic effects associated with high prices and energy shortages imply that the importance of inconsistencies with the basic Hotelling model identified by this analysis may be sufficient to warrant a greater degree of government intervention in the transition from oil than is currently envisioned by most policy makers.

Purchase ( $25 )

Energy Specializations: Petroleum – Exploration and Production; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Modeling – Integrated Assessment Modeling

JEL Codes:
D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Q43 - Energy and the Macroeconomy

Keywords: oil production, US, empirical model, oil prices, Hotelling model, Hubbert curve, oil policy

DOI: 10.5547/ISSN0195-6574-EJ-Vol22-No1-2


Published in Volume22, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.