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Weighted Average Cost of Retail Gas (WACORG) highlights pricing effects in the US gas value chain: Do we need wellhead price-floor regulation to bail out the unconventional gas industry?

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  • Ruud, Weijermars

Abstract

The total annual revenue stream in the US natural gas value chain over the past decade is analyzed. Growth of total revenues has been driven by higher wellhead prices, which peaked in 2008. The emergence of the unconventional gas business was made possible in part by the pre-recessional rise in global energy prices. The general rise in natural gas prices between 1998 and 2008 did not lower overall US gas consumption, but shifts have occurred during the past decade in the consumption levels of individual consumer groups. Industry's gas consumption has decreased, while power stations increased their gas consumption. Commercial and residential consumers maintained flat gas consumption patterns. This study introduces the Weighted Average Cost of Retail Gas (WACORG) as a tool to calculate and monitor an average retail price based on the different natural gas prices charged to the traditional consumer groups. The WACORG also provides insight in wellhead revenues and may be used as an instrument for calibrating retail prices in support of wellhead price-floor regulation. Such price-floor regulation is advocated here as a possible mitigation measure against excessive volatility in US wellhead gas prices to improve the security of gas supply.

Suggested Citation

  • Ruud, Weijermars, 2011. "Weighted Average Cost of Retail Gas (WACORG) highlights pricing effects in the US gas value chain: Do we need wellhead price-floor regulation to bail out the unconventional gas industry?," Energy Policy, Elsevier, vol. 39(10), pages 6291-6300, October.
    • Handle: RePEc:eee:enepol:v:39:y:2011:i:10:p:6291-6300
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