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

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  • Charles F. Mason and Gavin Roberts

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.

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  • Charles F. Mason and Gavin Roberts, 2018. "Price Elasticity of Supply and Productivity: An Analysis of Natural Gas Wells in Wyoming," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    • Handle: RePEc:aen:journl:ej39-si1-mason
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    Cited by:

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    2. Ben Gilbert & Gavin Roberts, 2018. "Supply-side links in oil and gas markets," Working Papers 2018-04, Colorado School of Mines, Division of Economics and Business.
    3. Prest, Brian C. & Fell, Harrison & Gordon, Deborah & Conway, TJ, 2023. "Estimating the Emissions Reductions from Supply-side Fossil Fuel Interventions," RFF Working Paper Series 23-11, Resources for the Future.
    4. Cisneros-Pineda, Alfredo & Aadland, David & Tschirhart, John, 2020. "Impacts of cattle, hunting, and natural gas development in a rangeland ecosystem," Ecological Modelling, Elsevier, vol. 431(C).
    5. Oliver, Matthew E., 2019. "Pricing flexibility under rate-of-return regulation: Effects on network infrastructure investment," Economic Modelling, Elsevier, vol. 78(C), pages 150-161.
    6. Shakya, Shishir & Li, Bingxin & Etienne, Xiaoli, 2022. "Shale revolution, oil and gas prices, and drilling activities in the United States," Energy Economics, Elsevier, vol. 108(C).
    7. Ikonnikova, Svetlana A. & del Carpio Neyra, Victor & Berdysheva, Sofia, 2022. "Investment choices and production dynamics: The role of price expectations, financial deficit, and production constraints," Journal of Economics and Business, Elsevier, vol. 120(C).
    8. van den Bijgaart, Inge & Rodriguez, Mauricio, 2023. "Closing wells: Fossil development and abandonment in the energy transition," Resource and Energy Economics, Elsevier, vol. 74(C).
    9. van den Bijgaart, Inge & Rodriguez, Mauricio, 2020. "Closing wells; fossil exploration and abandonment in the energy transition," Working Papers in Economics 789, University of Gothenburg, Department of Economics.
    10. Rubaszek, Michał & Szafranek, Karol & Uddin, Gazi Salah, 2021. "The dynamics and elasticities on the U.S. natural gas market. A Bayesian Structural VAR analysis," Energy Economics, Elsevier, vol. 103(C).
    11. Mugabe, Douglas & Elbakidze, Levan & Zaynutdinova, Gulnara, 2020. "Investments of publicly traded versus privately held firms: evidence from stranded growth options in the U.S. shale gas industry," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304361, Agricultural and Applied Economics Association.

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