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Shale Gas Boom Affecting the Relationship Between LPG and Oil Prices

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  • Atle Oglend
  • Morten E. Lindback
  • Petter Osmundsen

Abstract

Liquefied petroleum gases (LPGs) together with other natural gas liquids (NGLs) have played an important role in the current U.S. shale gas boom. Depressed gas prices in recent years have made pure natural gas operations less profitable. The result is that liquids components in gas production have become increasingly important in ensuring the profitability of shale gas operations. In this paper we investigate whether the shale gas expansion, which has led to an increase in associated LPG production, has also affected the historically strong relationship between LPG and oil prices. Revealing the strength and stability of the LPG/oil relationship is relevant when it comes to the future profitability and development of the U.S. natural gas sector. Our results suggest that the LPG/oil relationship has weakened in recent years with a move towards cheaper liquids relative to oil. This is consistent with developments in the natural gas sector with increased liquids production. A consequence is that U.S. natural gas operations cannot automatically rely on high liquids prices to ensure profitability.

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  • Atle Oglend & Morten E. Lindback & Petter Osmundsen, 2015. "Shale Gas Boom Affecting the Relationship Between LPG and Oil Prices," The Energy Journal, , vol. 36(4), pages 265-286, October.
    • Handle: RePEc:sae:enejou:v:36:y:2015:i:4:p:265-286
    DOI: 10.5547/01956574.36.4.aogl
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    Cited by:

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    3. Chen, Yan, 2021. "Evaluating the influence of energy prices on tight oil supply with implications on the impacts of COVID-19," Resources Policy, Elsevier, vol. 73(C).
    4. Ali Jadidzadeh & Mobin Mirzababaei & Apostolos Serletis, 2022. "Oil Prices and the Hydrocarbon Markets: A Review," Energies, MDPI, vol. 15(17), pages 1-9, August.
    5. Sirine Toumi, 2019. "Co-movements amongst Gold and Oil: A Multivariate Time-Varying Asymmetric Approach," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 9(3-4), pages 52-68.
    6. Frank Asche, Atle Oglend, and Petter Osmundsen, 2017. "Modeling UK Natural Gas Prices when Gas Prices Periodically Decouple from the Oil Price," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    7. Núñez, Héctor M. & Trujillo-Barrera, Andres & Etienne, Xiaoli, 2022. "Declining integration in the US natural gas market," Resources Policy, Elsevier, vol. 78(C).
    8. Oglend, Atle & Kleppe, Tore Selland & Osmundsen, Petter, 2016. "Trade with endogenous transportation costs: The case of liquefied natural gas," Energy Economics, Elsevier, vol. 59(C), pages 138-148.
    9. Chiappini, Raphaël & Jégourel, Yves & Raymond, Paul, 2019. "Towards a worldwide integrated market? New evidence on the dynamics of U.S., European and Asian natural gas prices," Energy Economics, Elsevier, vol. 81(C), pages 545-565.
    10. Atle Oglend & Petter Osmundsen & Tore Selland Kleppe, 2020. "Time Commitments in LNG Shipping and Natural Gas Price Convergence," The Energy Journal, , vol. 41(2), pages 29-46, March.
    11. Soohyeon Kim & Surim Oh, 2020. "Impact of US Shale Gas on the Vertical and Horizontal Dynamics of Ethylene Price," Energies, MDPI, vol. 13(17), pages 1-12, August.
    12. Guo, Jiaqi & Long, Shaobo & Luo, Weijie, 2022. "Nonlinear effects of climate policy uncertainty and financial speculation on the global prices of oil and gas," International Review of Financial Analysis, Elsevier, vol. 83(C).
    13. Karol Szafranek & Marek Kwas & Grzegorz Szafrański & Zuzanna Wośko, 2020. "Common Determinants of Credit Default Swap Premia in the North American Oil and Gas Industry. A Panel BMA Approach," Energies, MDPI, vol. 13(23), pages 1-23, November.
    14. Brown, Stephen P.A., 2017. "Natural gas vs. oil in U.S. transportation: Will prices confer an advantage to natural gas?," Energy Policy, Elsevier, vol. 110(C), pages 210-221.
    15. Bai, Xiwen & Lam, Jasmine Siu Lee, 2019. "A copula-GARCH approach for analyzing dynamic conditional dependency structure between liquefied petroleum gas freight rate, product price arbitrage and crude oil price," Energy Economics, Elsevier, vol. 78(C), pages 412-427.
    16. Zhang, Dayong & Ji, Qiang, 2018. "Further evidence on the debate of oil-gas price decoupling: A long memory approach," Energy Policy, Elsevier, vol. 113(C), pages 68-75.

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    More about this item

    Keywords

    Liquefied petroleum gas; natural gas; oil; cointegration; price analysis;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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