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Shale Gas Boom Affecting the Relationship Between LPG and Oil Prices

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  • Atle Oglend, Morten E. Lindbäck, and Petter Osmundsen

Abstract

Liquefied petroleum gases (LPGs) together with other natural gas liquids (NGLs) have played an important role in the current U.S. shale gas boom. Depressed gas prices in recent years have made pure natural gas operations less profitable. The result is that liquids components in gas production have become increasingly important in ensuring the profitability of shale gas operations. In this paper we investigate whether the shale gas expansion, which has led to an increase in associated LPG production, has also affected the historically strong relationship between LPG and oil prices. Revealing the strength and stability of the LPG/oil relationship is relevant when it comes to the future profitability and development of the U.S. natural gas sector. Our results suggest that the LPG/oil relationship has weakened in recent years with a move towards cheaper liquids relative to oil. This is consistent with developments in the natural gas sector with increased liquids production. A consequence is that U.S. natural gas operations cannot automatically rely on high liquids prices to ensure profitability.

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  • Atle Oglend, Morten E. Lindbäck, and Petter Osmundsen, 2015. "Shale Gas Boom Affecting the Relationship Between LPG and Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    • Handle: RePEc:aen:journl:ej36-4-osmundsen
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    7. Brown, Stephen P.A., 2017. "Natural gas vs. oil in U.S. transportation: Will prices confer an advantage to natural gas?," Energy Policy, Elsevier, vol. 110(C), pages 210-221.
    8. Ngo Thai Hung, 2020. "Identifying the Dynamic Connectedness between Propane and Oil Prices: Evidence from Wavelet Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 315-326.
    9. Chiappini, Raphaël & Jégourel, Yves & Raymond, Paul, 2019. "Towards a worldwide integrated market? New evidence on the dynamics of U.S., European and Asian natural gas prices," Energy Economics, Elsevier, vol. 81(C), pages 545-565.
    10. Oglend, Atle & Kleppe, Tore Selland & Osmundsen, Petter, 2016. "Trade with endogenous transportation costs: The case of liquefied natural gas," Energy Economics, Elsevier, vol. 59(C), pages 138-148.
    11. Ali Jadidzadeh & Mobin Mirzababaei & Apostolos Serletis, 2022. "Oil Prices and the Hydrocarbon Markets: A Review," Energies, MDPI, vol. 15(17), pages 1-9, August.
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    13. Zhang, Dayong & Ji, Qiang, 2018. "Further evidence on the debate of oil-gas price decoupling: A long memory approach," Energy Policy, Elsevier, vol. 113(C), pages 68-75.

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