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

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

Energy Economics, 2021, vol. 93, issue C

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.

Keywords: Natural gas price; Shale gas production; Unit root test; Structural breaks; Panel cointegration (search for similar items in EconPapers)
JEL-codes: C01 C32 Q40 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:93:y:2021:i:c:s0140988319300799

DOI: 10.1016/j.eneco.2019.03.001

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