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Price Elasticity of Supply and Productivity: An Analysis of Natural Gas Wells in Wyoming

Charles F. Mason and Gavin Roberts

Year: 2018
Volume: Volume 39
Number: Special Issue 1
DOI: 10.5547/01956574.39.SI1.cmas
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Abstract:
Using a large dataset of well-level natural gas production from Wyoming, we evaluate the respective roles played by market signals and geological characteristics in natural gas supply. While we find well-level production of natural gas is primarily determined by geological characteristics, producers respond to market signals through drilling rates and locations. Using a novel fixed effects approach based on petroleum-engineering characteristics, we confirm that production decline rates tend to be larger for wells with larger peak-production rates. We also find that the price elasticity of peak production is negative, plausibly because firms drill in less productive locations as prices increase. Finally, we show that drilling is price inelastic, although the price elasticity of drilling increased significantly when new technologies began to be adopted in Wyoming. Our results indicate that the popular view that shale wells have larger decline rates than conventional wells can be at least partially explained by the pattern of falling natural gas prices.



Fracking and Structural Shifts in Oil Supply

W.D. Walls and Xiaoli Zheng

Year: 2022
Volume: Volume 43
Number: Number 3
DOI: 10.5547/01956574.43.3.wwal
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Abstract:
The adoption of hydraulic fracturing (fracking) and horizontal drilling technology substantively altered the structure of oil supply. Using disaggregate state-level data from the U.S, this paper provides empirical evidence that oil supplies are now asymmetric with respect to price changes as a result of the adoption of new production methods. The changed structure of U.S. oil supply—particularly the low supply elasticities for price declines and large supply elasticities for price increases—is consistent with the ineffectiveness of OPEC policies intended to drown fracking American producers in oil.





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