Date of Award

2014

Document Type

Thesis

Degree Name

Bachelors

Department

Social Sciences

First Advisor

Khemraj, Tarron

Keywords

Hydraulic Fracturing, Natural Resources, Economics, Oil, Natural Gas

Area of Concentration

Economics

Abstract

Following the development of novel hydraulic fracturing techniques, the price of natural gas has fallen significantly relative to the price of crude oil. A number of past studies found that the prices of natural gas and crude oil are linked. The tie between the prices of the two commodities is largely due to the fact that these fossil fuels are substitutes in consumption. This thesis uses an empirical technique called an error correction model, a form of regression analysis, to estimate the extent to which the prices of natural gas and crude oil remain linked following the influx of large supplies of low cost natural gas. While high volatility in the prices of oil and gas and a relatively short sampling period preclude any strong conclusions, the findings of the analysis suggest that, although the price of natural gas has fallen persistently relative to the price of crude oil following the move to hydraulic fracturing, the prices remain cointegrated: linked together even as they drift apart. This link suggests that substitution between crude oil and natural gas may still connect the prices of these commodities.

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