The Long-Run Oil-Natural Gas Price Relationship And The Shale Gas Revolution

Massimiliano Caporin and Fulvio Fontini

No 198, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: The gas extraction technological developments of the 2000s have allowed shale gas production, which in the US has become a significant part of the total gas production. Such a significant change might have affected the long-run relationship between oil and natural gas prices postulated by several authors. By using monthly data of oil and gas prices, as well as gas quantities from 1997 to 2013, we test for the presence of a long-run relationship, allowing also for possible breaks. We first show the stationarity of gas quantity data before the production of shale gas and the existence of a break in the trend (and in the the intercept) on the integrated gas price time series, by the time shale gas enters the market. Then, applying a Vector Error Correction Model, we show that shale gas production has affected the relationship across variables. Gas quantities become relevant in the formation of gas prices after the beginning of shale gas production, while impact of oil prices on the gas ones doubles. However, on the basis of the available data, it is not unequivocally possible to assess whether or not a new long-run relationship between oil and gas has been established.

Keywords: Shale Gas; Natural Gas; Crude Oil; Cointegration; Vector Error Correction Models. (search for similar items in EconPapers)
JEL-codes: C01 C32 Q40 Q41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2015-07
New Economics Papers: this item is included in nep-ene
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: The long-run oil–natural gas price relationship and the shale gas revolution (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0198

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