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

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.

Understanding productivity effects of hydraulic fracturing in unconventional natural gas deposits and implications for adoption in the developing world

“…We find evidence of steep decline rates – 7.5 per cent per month – over the short period of observed production. This is consistent with previously estimated decline rates in Wyoming (Mason and Roberts, 2018). There is not much evidence that decline rates are directly affected by fluid additives as we measure them.…”

Closing Wells; Fossil Exploration and Abandonment in the Energy Transition

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The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata

“…While a number recent studies on the shale gas boom have estimated drilling elasticities for gas wells (Newell, Prest and Vissing 2019;Mason andRoberts 2018, Hausman andKellogg 2015), relatively few studies have touched upon U.S. oil drilling or supply elasticities. A couple of recent studies do estimate oil drilling elasticities, but they tend to analyze conventional wells pre-dating the shale boom of the 2010s.…”