Double Marginalization and the Paths of Natural Gas Gathering Pipelines

Abstract

Efficient natural gas recovery requires the development of an extensive pipeline network of gathering lines, connecting individual gas wells with processing stations and major transmission lines. Networks of gathering lines are likely to face the economic problem of double marginalization, whereby it is more expensive to run a pipe of a given length through a geographic area that is owned by multiple parties than it would be if the area were owned by a single party, ceteris paribus. Due to the economics of double marginalization, gathering lines may be placed so as to avoid paths with multiple property owners. I formalize this using a simple game theoretic model, and explore this theory empirically in Bradford County, Pennsylvania, a jurisdiction that has recently experienced a dramatic increase in natural gas production due to recent innovations in drilling. In Bradford, I observe the locations of recently drilled gas wells and, importantly, gathering lines for a single cross-section of the county taken in 2012. I combine these data with data on tax parcel boundaries in order to investigate whether the paths taken by gathering lines are influenced by parcel ownership patterns in ways consistent with the economic theory of double marginalization.