State Dependence in the Natural Gas and Rig Count Relationship

I just posted a new working paper, 'State Dependence in the Natural Gas and Rig Count Relationship' to the USAEE working paper series on SSRN.  The paper is available for download here:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2371753

In a nutshell, the paper finds that changes in the north American natural gas rig count does affect future changes in natural gas prices (previous  research has not found this result).  The relationship is state dependent however.  When natural gas prices are above $6.74/MMBtu then increases in the rig count will drive down natural gas prices. Below this threshold the rig count does not affect gas prices (however gas prices affect the rig count). In sum, the evidence is consistent with gas producers, 'killing the rally' in gas prices by markedly increasing gas production.

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