Date of Graduation

1990

Document Type

Dissertation/Thesis

Abstract

In this study, we have attempted to conduct an economic and policy analysis of the West Virginia natural gas producing industry. The research concentrated on industry activities, objectives and outcomes in the post-NGPA era. The primary goal was to determine the role of economic and market conditions on natural gas supply. First, the structure, conduct and performance of the West Virginia gas producing industry were examined with respect to key features of market structure--concentration, vertical and horizontal integration and barriers to entry. Second, a West Virginia gas supply (WVGAS) model based on the assumption of a price-taker industry was constructed. The functional specifications of the WVGAS model equations were based upon basic petroleum engineering principles, geology and economic theory. The behavioral relationships were empirically estimated using econometric model framework. Overall, and within the limitations imposed by the WVGAS database, the empirical results of the econometric analysis showed some consistent patterns. The results, in most cases, supported a priori expectations that drilling activities (and, hence, gross new reserves) were strongly influenced by expected real wellhead prices, tax incentives and market glut. Three policy simulations were performed with the WVGAS model. The simulation results indicated that, if relationships found in the past were assumed to hold, increased wellhead prices will continue to positively influence the level gross new reserve additions, but future gross new reserve additions will be constrained by market glut and increasing tax rate. The simulation analysis also suggested that total gas production from new reserves is highly insensitive to small changes in taxes and market glut, but very negatively sensitive to price changes. It was interesting to note that tax incentives have almost twice the effect of price incentives in new gas reserve generation process.

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