The development of the Marcellus Shale Play has altered the geography of production in the USA, particularly in the Northeast natural gas market. The purpose of this paper is to examine its impact on an already integrated industry.
The authors utilize the methodology of co-integration and focus on the geographic reach of the Marcellus region to examine movements of prices across the upstream, midstream and downstream segments of the industry.
The results of this paper indicate that prices across segments remain strongly co-integrated with the boom in production. The short-run dynamics, however, reveal a slower adjustment to the long-run equilibrium following the boom, particularly for wellhead to city-gate and wellhead to residential prices.
The growth in delivery infrastructure has not kept up with the boom in production creating bottlenecks. The supply shock brought about by the boom in production has not altered previously established co-integrating relationships but has altered the speeds of adjustment towards the long-run equilibrium.
