Shale Gas and the Relationship between the U.S. Natural Gas, Liquefied Petroleum Gases and Oil Markets

30 Pages Posted: 21 Jul 2013

See all articles by Atle Oglend

Atle Oglend

University of Stavanger

Morten E. Lindbäck

Fondsfinans ASA

Petter Osmundsen

University of Stavanger; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 18, 2013

Abstract

Natural gas liquids and liquefied petroleum gases have played an important role in the current US 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 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.

Suggested Citation

Oglend, Atle and Lindbäck, Morten E. and Osmundsen, Petter, Shale Gas and the Relationship between the U.S. Natural Gas, Liquefied Petroleum Gases and Oil Markets (July 18, 2013). USAEE Working Paper No. 13-135, Available at SSRN: https://ssrn.com/abstract=2295604 or http://dx.doi.org/10.2139/ssrn.2295604

Atle Oglend (Contact Author)

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

Morten E. Lindbäck

Fondsfinans ASA ( email )

P.O. Box 1782 Vika
Oslo
Norway

Petter Osmundsen

University of Stavanger ( email )

4036 Stavanger
Norway

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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