Economic supply models for crude oil and natural gas in Texas

A mathematical model is developed for evaluating the effects of changes in the prices producers of crude oil and natural gas receive on the levels of crude oil and natural gas production in Texas. Additionally, the effects of the important costs and of the major structural constraints of the oil and gas industry can be analyzed using the model. The results show that increasing the price of oil from $4.00 per barrel to $7.85 per barrel and increasing the price of gas from $0.25 per thousand cubic feet to $0.60 per thousand cubic feet at the start of 1972 and maintaining the price through 1985 result in the projected production of oil in Texas increasing from 0.808 X 10^9 barrels in 1985 to 1.300 X 10^9 barrels in 1985. The projected production of natural gas changes from 5.220 X 10^9 thousand cubic feet in 1985 to 10.354 X 10^9 thousand cubic feet in 1985. This analysis indicates that the future production of oil and gas in Texas is sensitive to economic incentives, particularly prices received for oil and gas. The effects of changing the important structural parameters are analyzed. The results indicate that future production levels are comparatively insensitive to change in operating costs but comparatively sensitive to changes in investment costs, interest rates, and time lags.