Frackers to Pump Less Oil and Gas To Push Up Prices
This is the headline on the print version of a Wall Street Journal news story in the November 12 edition. Fortunately, in the electronic version, it is now a more-accurate “Frackers Prepare to Pull Back, Exacerbating a Slowdown in U.S. Oil Growth.”
Why the problem with the first headline? Because it says that frackers’ motivation in pumping less oil and gas is to push up prices. But for that to be their motivation, they would have to have a lot of market power as a group and be able to collude. The first condition could hold; there’s no way the second condition does. There are too many players for any collusive agreement to hold up. The agreement would fall prey to the prisoners’ dilemma: each individual member would have an incentive to “cheat” on any agreement to cut production.
To their credit, the news writers, Rebecca Elliott and Christopher M. Matthews, don’t make that mistake in the article. Instead they explain the lower fracking by the standard economist’s explanation: moving down a supply curve in response to a lower price. They write:
Among them [shale producers that are cutting back] is Pittsburgh-based EQT, the country’s largest natural-gas producer, which plans to spend roughly $400 million less next year and said last week its production could decline slightly. Chief Executive Toby Rice said spending could fall an additional 30% after 2020, citing lower gas prices.
READER COMMENTS
David Seltzer
Nov 21 2019 at 5:06pm
Yale Brozen used to talk about the short lived nature of price collusion. Railroad owners would meet in private to set prices. The first person out of the room to find a phone would offer a lower price to prospective clients.
BC
Nov 22 2019 at 7:23am
It seems like anti-monopolists and those most suspicious of corporate power should welcome fracking and the rise of US fossil fuel production. US producers are subject to anti-trust laws and can’t collude in the way that OPEC does.
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