R-3 Repository :: Browsing by Author "Hartley, Peter R"

Browsing by Author "Hartley, Peter R"

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Anatomy of a North American Shale Boom: The Dynamics of Leasing, Drilling, and Learning
(2018-04-06) Agerton, Mark; Hartley, Peter R
The two main chapters of this thesis study how mineral leasing, drilling decisions, and learning by firms interact over time in unconventional U.S. oil and gas plays. The first chapter uses a stylized, theoretical model to study how the paths of aggregate mineral leasing and drilling investment are jointly determined in equilibrium by forward-looking landowners and firms. This longer-run, market-level view abstracts away from the particular geological characteristics and mineral lease-terms of each location, focusing instead on the dynamics of the general equilibrium and a theory of how the quantity and price of mineral lease transactions are determined over time. The model uses search costs to explain the empirical delay between when firms acquire leases and drill them. Drilling appears to be delayed because firms accelerate leasing during early periods when a large supply of unleased acreage makes search costs low. The second chapter studies what firms know and learn about the geological quality of the particular locations they drill. The paper does this by estimating a dynamic discrete choice model of firms drilling decisions that incorporates learning about quality over space. Forecasts from the model show how the depletability of oil and gas deposits, the evolution of firms' information about geology, and firms' incentive to drill better locations first affect average output per well over time. Results suggest that firms may have been able to improve average output of wells drilled by around 25% since 2008 by learning about geological quality over space and then targeting better locations. Firms will exhaust the most prolific locations first and transition to drilling less productive areas; however, the model implies that the associated annual decline in average output per well drilled over the next ten years will be mild—a little less than 0.5%.
Characterizing Production in the Barnett Shale Resource: Essays on Efficiency, Operator Effects and Well Decline
(2016-04-21) Seitlheko, Likeleli; Hartley, Peter R
This dissertation is composed of three papers in the field of energy economics. The first paper estimates revenue and technical efficiency for more than 11,000 wells that were drilled in the Barnett between 2000 and 2010, and also examines how the efficiency estimates differ among operators. To achieve this objective, we use stochastic frontier analysis and a two-stage semi-parametric approach that consists of data envelopment analysis in the first stage and a truncated linear regression in the second stage. The stochastic frontier analysis (SFA) and data envelopment analysis (DEA) commonly identify only two operators as more revenue and technically efficient than Devon, the largest operator in the Barnett. We further find that operators have generally been effective at responding to market incentives and producing the revenue-maximizing mix of gas and oil given the reigning prices. Furthermore, coupled with this last result is the insight that most of the revenue inefficiency is derived from technical inefficiency and not allocative inefficiency. The second paper uses multilevel modeling to examine relative operator effects on revenue generation and natural gas output during the 2000-2010 period. The estimated operator effects are used to determine which operators were more effective at producing natural gas or generating revenue from oil and gas. The operators clump together into three groups – average, below average, and above average – and the effects of individual operators within each group are largely indistinguishable from one another. Among the operators that are estimated to have above average effects in both the gas model and the revenue model are Chesapeake, Devon, EOG and XTO, the top four largest operators in the Barnett. The results also reveal that between-operator differences account for a non-trivial portion of the residual variation in gas or revenue output that remains after controlling for well-level characteristics, and prices in the case of the revenue model. In the third paper, we estimate an econometric model describing the decline of a “typical” well in the Barnett shale. The data cover more than 15,000 wells drilled in the Barnett between 1990 and mid-2011. The analysis is directed at testing the hypothesis proposed by Patzek, Male and Marder (2014) that linear flow rather than radial flow – the latter of which is consistent with Arps (1945) system of equations – governs natural gas production within hydraulically fractured wells in extremely low permeability shale formations. To test the hypothesis, we use a fixed effects linear model with Driscoll-Kraay standard errors, which are robust to autocorrelation and cross-sectional correlation, and estimate the model separately for horizontal and vertical wells. For both horizontal and vertical shale gas wells in the Barnett, we cannot reject the hypothesis of a linear flow regime. This implies that the production profile of a Barnett well can be projected – within some reasonable margin of error – using the decline curve equation of Patzek, Male and Marder (2014) once initial production is known. We then estimate productivity tiers by sampling from the distribution of the length normalized initial production of horizontal wells and generate type curves using the decline curve equation of Patzek, Male and Marder (2014). Finally, we calculate the drilling cost per EUR (expected ultimate recovery) and the breakeven price of natural gas for all the tiers.
Essays on Crude Oil Markets and Electricity Access
(2019-05-13) Volkmar, Peter; Hartley, Peter R
In the first chapter I discuss how OPEC's internal costs restrict their ability collude. Where membership in 2007 was anchored by three large, low-cost producers in Iran, Venezuela and Saudi Arabia, by 2015 Venezuela and Iran were no longer large producers due to lack of investment and sanctions, respectively. This left Saudi Arabia and Iraq as the only large producers. Using a game theory model, I show that together they did not have the power to enforce quotas among themselves and other OPEC members without Russia's participation. More generally, my model implies that at present, OPEC is unable to enforce quotas without full participation of either Iran or Russia. This situation has been exacerbated, from their perspective, by improved medium- and long-term price responsiveness of non-OPEC crude oil supply, which erodes OPEC market power. However, the model implies that this change in non-OPEC supply is not necessary for destroying OPEC's ability to cartelize. OPEC's current composition has reduced its ability to enforce production quotas among its membership. Many analysts have suggested that OPEC's role as swing producer will be supplanted by tight oil production from the United States. After exploring this possibility in my second chapter I find that tight oil production has not increased non-OPEC supply's short-term price responsiveness, while demand has simultaneously grown more brittle. This implies OPEC's role as swing producer is more important for stabilizing price now than at any point in the past decade. Yet my first chapter shows they are currently ill-prepared for the task. The final chapter constructs a measure of the relative success of different countries in providing access to electrical power, which is in turn a critical determinant of energy poverty. Measuring energy poverty indexing is only helpful if it allows us to discern how lagging countries may be able to attain outcomes like their peers. More specifically, I utilize frontier analysis to develop efficiency ratings in meeting electricity demand that highlight inputs countries are not using efficiently to that end. Charts in the chapter compare 71 countries' existing infrastructure relative to their electrification rates. The Data Envelopment Analysis employed allows comparison between an inefficient country and a group of it economic peers. Additionally, it shows how far from the frontier an under performing country is in each type of input, tracks progress over years and puts bootstrapped confidence intervals on all point estimates.
Essays on Oil Volatility, Storage, and Investment
(2017-08-11) Faquih, Yaser; Hartley, Peter R
Recent oil market developments have made the understanding of both short term and long term oil price term structure and volatility an essential component in the decision making process. Short term volatility and the oil forward curve term structure have always been important for producers, storage operators and speculators in deciding how much to add or withdraw from inventories and what production volumes are needed to smooth the production and storage cycle, and how to arbitrage term spreads through the use of futures and options trading instruments In the first chapter, we start by looking at the oil futures price curve over time, and examine some of its properties such as its correlation and variance structure. Then we perform Principle Component Analysis (PCA) on the futures curve over our study period to glean some insights about the dominant statistical components driving the overall futures curve movement and volatility, and how these dynamics are changing over time. Next we move to the second object of investigation in this chapter, namely modeling of the oil volatility process, and examine how volatility has tended to react to inventory forward cover and futures curve term structure spread, and highlight some key findings. Then we employ a Vector Autoregressive model (VAR) to understand how oil price volatility interacts with other oil fundamental variables and relevant economic time series, such as the overall business cycle, industrial production, the level of commercial inventory and the share of OPEC spare capacity to world demand. Here, we look at the spot (or near month) oil price volatility only, as opposed to the entire future curve. Finally, we look at some causal and cointegration relationships between relevant variables. In the second chapter, we develop and solve a model of a dominant firm aiming to maximize profit by choosing optimal production and storage. We assume that the firm is a large and strategic player in this market, and can influence market prices through its supply decisions. We will also assume that the market has many small competitive producers, and we call them the competitive fringe. Supply by the fringe is uncertain and is often prone to shocks, which could be either positive (reflecting new temporary production boosts for example) or negative (due to disruptions caused by operational or geopolitical events). The dominant firm takes a stochastic supply of a competitive fringe as given, and then determines the optimal oil production policy and storage policy. Thus, the dominant producer factors-in this uncertainty in supply by other producers before making its supply decision. We assume aggregate demand has to equal the sum of both stochastic fringe supply, and the supply by the dominant firm. In particular, the overall market supply inherits the uncertainty introduced by the stochastic shocks to fringe supply. As a consequence, the equilibrium market price will also be a function of those shocks. To see how the model behaves given these assumptions, we solve a dynamic maximization model numerically then compare our findings to that of the perfectly competitive case to glean some insights on how dominant producers might balance their production and storage decisions. In the third chapter, we consider the decision of an oil producing company that faces a downward sloping demand curve, and an increasing price trend, with some randomness. The firm wishes to maximise its life-time profit buy choosing the optimal policy for adding investing in additional production capacity. Adding production capacity is costly, as is typical in large oil projects. The firm chooses between three additional levels of production, a small production increment, a medium increment, and a large increment. The cost of additional increments is linearly proportional to their size. In addition, the firm also faces a constant marginal production cost per barrel. As a simplification, we assume the the inverse demand curve is continuously shifting to the right, with some noise. This assumption reflects the ever increasing pressure on prices in the long run due to increased population growth and global energy needs, in addition to the continuous depletions of conventional oil resources, and the need for oil companies to go to harder and more costly plays in order to meet future supply needs.
Four Essays on Applied Energy Economics and Policy
(2016-04-22) Bajo Buenestado, Raul; Hartley, Peter R
This thesis is divided in two parts. The first part (chapters 1 and 2) studies capacity payments in the electricity sector. The second part (chapter 3 and 4) is on gasoline retail markets. The first chapter explores welfare implications of capacity markets in the electricity sector. We propose a theoretical model with cost heterogeneous firms, for which price and quantity equilibria are obtained both with and without a capacity market. The consequences for consumers are assessed using three different measures: consumer surplus, probability of blackout and price volatility. We conclude that a capacity market is able to reduce extreme events. Under some circumstances, we show that a capacity market is also efficiency enhancing. In the second chapter, we use data from the Texas ERCOT to study the impact of capacity payments in a stylized wholesale electricity market. We find that the introduction of capacity payments has two countervailing effects. On the one hand, it increases consumers’ bills. On the other hand, it reduces price volatility and blackout probability. We find that the net impact on consumer surplus is negative both in a perfectly competitive market and in the presence of market power. In the third chapter, we use monthly data from the Spanish gasoline retail market to explore asymmetries in consumers’ responses to changes in gasoline prices and taxes. We investigate whether an increase in taxes has a more negative impact on the demand than an increase in the “pre-tax” price of gasoline. We estimate consumers’ behavioral responses using a rich set of robust models. We find evidence of asymmetric responses for the demand of unleaded fuels and agricultural diesel fuel. In the final chapter we study a game of spatial competition in prices. We focus on the linear city duopoly model to see what we can learn about the distribution of consumers, which is approximated using variation in equilibrium prices and costs. We apply our methodology to a dataset on prices of a pair of gas stations in a straight highway. Using our approximation, we are able to calculate where should be located an entrant gas station to maximize welfare.
Four Essays on the Economics of Natural Gas Markets
(2018-11-21) Hinchey, Nathalie; Hartley, Peter R
This dissertation consists of four different essays which examine the pricing decisions, costs and strategic considerations of natural gas suppliers in the European and North American natural gas markets. The first essay investigates how Gazprom, Russia’s natural gas exporter, responds to diversification efforts in Europe. I employ a theoretical Nash bargaining model and estimate a correlated random effects model to find that Gazprom charges lower prices to importers who are less dependent on Russian supplies of natural gas than those who are more dependent. The second paper specifically explores Gazprom’s pricing of natural gas in the Baltic States and determines that Gazprom charges lower than monopoly prices to its Baltic clients, despite the fact that the Baltic Region was completely dependent on Russian supplied natural gas until very recently. I propose two possible explanations for Gazprom's apparent deviation from its profit-maximizing behavior. First, I provide evidence that Gazprom priced its natural gas to avoid fuel substitution from natural gas to fuel oil. Second, I find that the Baltic States possess some countervailing bargaining power in price negotiations with Gazprom. The third paper studies peak load underground storage decisions in salt caverns in the Gulf Region of the United States. I estimate the cost of injecting natural gas into an underground salt cavern storage facility over varying storage levels to understand how injection costs respond to increased demand for storage. The estimated cost function should aid in underground storage valuation techniques, which tend to assume constant injection costs. The last essay examines the ability of vertically integrated firms, which own assets in both the natural gas and electricity markets, to manipulate natural gas and electricity prices. I develop a theoretical model that examines the incentives of vertically integrated firms to supply and allocate natural gas to the retail and wholesale markets. I show that these firms may choose to favor supply to the retail market in order to increase their profits, especially profits in the electricity sector, and to avoid penalties from failing to adequately supply the retail natural gas market. I further find that anti-competitive behavior is easier to detect when there are no pipeline constraints.

Browsing by Author "Hartley, Peter R"

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