Matthew E Oliver hails from Memphis, Tennessee. He received his bachelor’s degree in Business Economics from the University of Memphis in 2008, and his PhD in Economics from the University of Wyoming in 2013. His primary fields of expertise are environmental and natural resource economics and international trade and development. Dr. Oliver’s research interests focus on energy resources and energy infrastructure, particularly natural gas markets and interstate pipelines. Additionally, he has a wide variety of ongoing research projects, including topics such as bio-economics and invasive species, international negotiations on climate change, and governance and resource use in developing countries.
Q: What drew you to explore the U.S. energy industry and natural gas pipeline network?
Partly my general interest in energy economics, but partly being in the right place at the right time. I started the economics PhD program at the University of Wyoming in 2008 with the intention to study energy and environmental issues, but I wasn’t thinking about natural gas specifically. During the summer of my second year, I was offered the opportunity to work as a research assistant to professors Charles F. Mason (a chaired professor of oil & natural gas economics) and David Finnoff on a natural gas research project funded by the state of Wyoming. From there, I just took the ball and ran with it. The project eventually became my dissertation research, and continues to be a major part of my overall research agenda.
Q: Can you describe how the U.S. natural gas pipeline infrastructure has changed since deregulation?
Wow. That’s not an easy question to answer. People have written entire books on it. I would first point out that the infrastructure itself hasn’t really changed, aside from expanding steadily in response to increased domestic use of natural gas as a primary energy source. Technological advances, of course, occur at a natural rate, but basically the infrastructure today is reminiscent of what it was 20 years ago, only more expansive. What has changed is the way the market works in terms of allocating pipeline transmission capacity among different users. We now have extremely robust (and complex) markets for pipeline capacity and transmission, many features of which are relatively new developments—the market’s response to a more liberalized structure. For those interested, a more complete (but still sufficiently concise) discussion of the way these markets work can be found in a paper by Professors Mason, Finnoff, and I that has recently been accepted for publication in the Journal of Regulatory Economics. The paper is entitled “Pipeline Congestion and Basis Differentials”, and Section 2 describes the current market structure, pointing out major deregulatory changes that have occurred over the past two decades. Here’s the link to the paper.
Q: What impact have these changes had on supply and demand?
Mostly positive impacts, with a couple exceptions. The Federal Energy Regulatory Commission’s restructuring of the entire natural gas industry—producers, pipelines, and local distributors—has encouraged competition from top to bottom. Ultimately, the more competition there is in the market for natural gas pipeline capacity and transmission, the better for natural gas producers and, perhaps most importantly, for end-use consumers. One issue, as my co-authors and I draw attention to in the paper I mentioned above, is that in some cases limits on transmission capacity, whether purely infrastructural or due (in part) to the manipulation of local market power, increase transportation costs—sometimes dramatically. This increase in costs is ultimately borne (in the form of commodity price effects) by those producers and consumers who have to use congested pipelines in order to make gas transactions. One side effect of some of the deregulatory actions the FERC has undertaken recently is that when and where congestion persists on the pipeline network, transportation costs tend to be exceptionally high, allowing owners of the rights to scarce pipeline capacity to reap significant profits at the expense of producers and consumers.
Q: How do you see the U.S. natural gas pipeline infrastructure expanding to meet future demand?
Building a new interstate natural gas pipeline is an immense undertaking, and the regulatory requirements that must be met in order for construction to commence can often be commensurate with the size of the project. That’s not to imply the regulatory requirements are somehow counterproductive, only that it can take a long time for pipeline companies to obtain permission to build, not to mention the time it takes to actually get the thing physically in the ground and online. Furthermore, I have another working paper in which I find evidence of significant diseconomies of scale for large, long-distance pipeline projects. All these factors point to a general tendency of the pipeline network to expand in small increments. A few large, long-distance pipelines have been built in the past couple decades, but such projects seem to be the exception rather than the rule. The key implication of this relates to the price-congestion effects I mentioned above. The advancements in extraction technology that have drastically increased recoverable domestic reserves, along with the growing concern over carbon emissions that have spurred a wide-scale transition from coal- to gas-fired electricity generation, each suggest that the demand for pipeline transport will only continue to grow over the foreseeable future. It is imperative that the pipeline network expand at a sufficient pace to meet this increase in transport demand, or bottlenecks on the network will continue to emerge, with systematic effects on the natural gas commodity market. One thing that we know counteracts these effects is the availability of gas storage, which will play a crucial role in maintaining market efficiency as the natural gas market continues to expand.
Q: If you weren’t teaching or conducting research, what would you be doing?
Haha… well, before getting my PhD in economics, I had a modestly successful career as a rock n’ roll musician/songwriter (I am from Memphis, after all). I suppose if I weren’t teaching and working on economic research, I would still be pursuing a career in music (although I’m not sure how my wife would feel about that). Music was definitely my first love, but it wasn’t an easy road to follow.