Relieving Midstream Constraints in Natural Gas Flaring [Job Market Paper]
Flaring releases carbon dioxide, methane, and other toxic air pollutants that are harmful to the environment and human health. Natural gas extracted from the ground cannot be sold in the markets unless there is sufficient capacity to process the gas. I theoretically derive a subsidy to offset the flaring damages that stem from insufficient processing capacity. The subsidy depends on the economic relationship between capacity and flaring, which I quantify using an instrumental variable model and new data from North Dakota. I find that processing capacity bottlenecks are indeed an important driver of flaring. I estimate that on average, each gas plant requires an ex-ante capacity subsidy of 396 dollars per thousand cubic feet to ensure that flaring emissions remain at the socially optimal levels. Back of the envelope calculations suggest that the subsidy would have reduced flaring by 1.4 billion cubic feet across the state, offsetting roughly 5 million dollars in flaring damages per year.
The Effect of Emissions Information Disclosure on the Upstream Natural Gas Industry [Draft Coming Soon]
In this paper, I use novel data on well-level methane emissions linked to the universe of natural gas producing wells in the U.S. to analyze the effect of emissions information on well production decisions. I conduct an event study to estimate changes in natural gas production after the detection of methane leaks by remote-sensing flights and the disclosure of leakage information. Given that production reported to the states must account for lost and re-used gas, if the equipment causing the leaks are repaired after a flyover, it would be reflected in an ex-post production increase. I find that production increases in the immediate months after the observation of a detectable methane leak of 5 kg/hr. Second, the effects are primarily driven by top 30% emitters in the sample operated by large publicly traded firms. My results indicate that disclosure of leak information affects production decisions in the natural gas industry. There are two primary mechanisms through which firms might respond to publicly released leakage data. First, given that measuring methane leaks can be costly, firms acquire new information from the disclosure and are able to fix stochastic equipment failures that can be hard to predict. Second, firms may be aware of the existing leaks but may delay repair due to high costs. However, public disclosure of leakage information may exert pressure on firms due to expected scrutiny from regulators and the general public.
The Option Value of Irreversible Investment in Oil Drilling [Draft Available Upon Request]
This paper examines how oil drilling as an irreversible investment is affected by uncertainty priced in the crude oil options market. Using risk neutral ex-ante probabilities of the outcomes of 13 OPEC (the Organization of the Petroleum Exporting Countries) meetings recovered from crude oil options, I conduct a stacked event study analysis to determine how drilling changes as uncertainty resolves leading up to the events. I find that at maximal uncertainty, firms delay their drilling until the event occurs. When event outcomes are more surprising, firms drill more as uncertainty resolves leading up to the event. When event outcomes are largely expected, the effect of uncertainty on drilling is relatively small. These findings are consistent with the theoretical literature on investment under uncertainty that as uncertainty increases, the incentive to delay increases and the gap between the expected benefit and cost necessary to trigger the investment should widen.