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

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Listed:
  • Charles F. Mason
  • 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.

Suggested Citation

  • Charles F. Mason & Gavin Roberts, 2018. "Price Elasticity of Supply and Productivity: An Analysis of Natural Gas Wells in Wyoming," The Energy Journal, , vol. 39(1_suppl), pages 79-100, June.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:1_suppl:p:79-100
    DOI: 10.5547/01956574.39.SI1.cmas
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    Cited by:

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    2. Prest, Brian C. & Fell, Harrison & Gordon, Deborah & Conway, TJ, 2024. "Estimating the emissions reductions from supply-side fossil fuel interventions," Energy Economics, Elsevier, vol. 136(C).

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