The FPC Staff's Econometric Model of Natural Gas Supply in the United States

The main emphasis in this study is on gas discoveries. They constitute the propelling force behind gas supply, and of the two broad relationships for which results are reported here - namely, discoveries and extensions and revisions - gas discovery is (qualitatively) the more important. Estimates for 1961-68 and 1961-69 discoveries are reported for a dynamic model, using time series of cross sections. Estimation is done first for a one-intercept model. Alternatively, the units (districts) are grouped by geological and geophysical characteristics, and estimates are derived for the grouped-districts model. This model yields generally better results. The inclusion of 1969 in the sampled period does not alter the results reported for 1961-68, and the discussion centers on the 1961-69 estimates. Conditional forecasts of 1970 discoveries indicate a drop of one-fifth to one-fourth of 1969 discoveries. The time path of the response of discoveries to the ceiling price of gas is examined, and simulation results for gas discoveries under alternative assumptions about the ceiling price of gas are reported. A procedure for combining the simulation results with available information on future gas requirements is developed to help the FPC in deciding on an appropriate level for the ceiling price of gas. Some policy implications are discussed.