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Does the shale gas boom change the natural gas price-production relationship? Evidence from the U.S. market

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  • Feng, Gen-Fu
  • Wang, Quan-Jing
  • Chu, Yin
  • Wen, Jun
  • Chang, Chun-Ping

Abstract

This study investigates the relationship between natural gas price and production and analyzes whether the recent shale gas boom has changed the nexus between the two. We set up a framework to test the directions of causal links between natural gas price and two measures of natural gas production: (1) gross natural gas production (aggregate of conventional natural gas and shale gas productions) and (2) conventional natural gas production only. Based on monthly data of 16 states in the U.S. between January 2007 and December 2016, we find robust evidence of a reliable relationship between natural gas price and gross production, but no reliable cointegration between gas price and conventional natural gas production. Our results are robust when we account for potential structural breaks and cross-section dependence in the data. Our evidence denotes that the recent shale gas boom has changed the relationship between natural gas price and production in the U.S. Moreover, our study shows that the structure break in the U.S market highly correlates to shale gas and also provides some evidence on that while cross-state factors result in long-term mean reversion, state-specific factors lead to a permanent shock.

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  • Feng, Gen-Fu & Wang, Quan-Jing & Chu, Yin & Wen, Jun & Chang, Chun-Ping, 2021. "Does the shale gas boom change the natural gas price-production relationship? Evidence from the U.S. market," Energy Economics, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:eneeco:v:93:y:2021:i:c:s0140988319300799
    DOI: 10.1016/j.eneco.2019.03.001
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    More about this item

    Keywords

    Natural gas price; Shale gas production; Unit root test; Structural breaks; Panel cointegration;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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