The economic possibilities of natural gas conservation: Antithetical results of prorationing regulation

Abstract

State prorationing regulations for natural gas production are intended to conserve resources, prevent waste, and, if necessary, protect the rights of property owners. This paper examines the effects of conservation regulations on the stock of the resource and on production costs. Results indicate rules that do not consider the nature of the physical stock and how it is recovered, as well as the heterogeneous nature of the reservoir, may result in sub-optimal production paths for individual wells. Such inefficiencies increase production costs and may in some cases, reduce the recoverable stock; results antithetical to the intended goals of the regulation.