Price Elasticity of Supply and Productivity: An Analysis of Natural Gas Wells in Wyoming
We evaluate the roles played by prices and geological characteristics in determining well-level natural gas supply.
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.
- Production of natural gas is primarily determined by geological characteristics.
- More recently fracked wells tend to have larger initial production and faster production decline rates.
- The price elasticity of initial production is negative, suggesting that firms are willing to drill in less geologically attractive locations when prices rise.
- These points complicate the decision to add pipeline capacity.
Report — Feb 21, 2024
Policy Incentives to Scale Carbon Dioxide Removal: Analysis and Recommendations
This report surveys the challenges to scaling carbon dioxide removal efforts in the United States and details short-term solutions and long-run policy frameworks.
On the Issues — Feb 9, 2024
On the Issues: Natural Gas Pause, Clean Energy Equity, and More
A biweekly newsletter connecting global current events, pressing climate and energy policy news, and economics research from RFF scholars. This week: natural gas pause, clean energy equity, and more.
Resources Radio — Feb 6, 2024
Are Increased Exports of US Liquefied Natural Gas in the Public Interest?, with Ben Cahill
Ben Cahill discusses the Biden administration’s recent decision to pause approvals of new facilities that export liquefied natural gas and arguments for and against increasing US exports of natural gas.
Common Resources — Feb 6, 2024
Accurately Quantifying “Super-Emitting” Leaks Is Key for the Methane Fee to Be Effective
As the US Environmental Protection Agency begins enforcing methane fees on the oil and gas industry, an important question begs answering: How can regulators best calculate the true extent of methane leaks?