a. If companies are responding to the higher prices for natural gas by drilling right now wherever they can, what does that imply about their assumptions about the future price of natural gas in relation to current interest rates?
b. What could cause the price of natural gas to fall in the future?
There is a land rush going on across Pennsylvania, but buyers aren’t interested in the land itself. Buyers are interested in what lies beneath the earth’s surface—mineral rights to natural gas deposits. Record high natural gas prices have already pushed up drilling activity across the state, but drilling companies have discovered a new technology that will enable deep gas-bearing shale to be exploited. Development companies, drilling companies and speculators have been trying to lease mineral rights from landowners. The new drilling techniques might recover about 10 percent of those reserves, and that would ring up at a value of $1 trillion.