Trophy Hunting versus Manufacturing Energy: The Price Responsiveness of Shale GasView Journal Article
We analyze the relative price responsiveness of unconventional versus conventional natural gas extraction. We separately analyze three key stages of gas production: drilling wells, completing wells, and producing natural gas from the completed wells. The most important margin is drilling investment, and neither production from existing wells nor completion times respond strongly to prices. We estimate a gas drilling response of 0.9% per 1% gas price shock, for both conventional and unconventional sources. Nonetheless, because unconventional wells produce about three times more gas per well than conventional ones, the supply response is much larger for unconventional supply. Accounting for changes to the level and composition of drilling activity, the gas supply is about three times more responsive during the “shale era” of 2010–15 compared to 2000–2005. We illustrate how the distinctions between the stages of production (drilling, completion, and production) are key to understanding price responsiveness.
Richard G. Newell
Dr. Richard G. Newell is the President and CEO of Resources for the Future. From 2009 to 2011, he served as the administrator of the US Energy Information Administration, the agency responsible for official US government energy statistics and analysis.
On the Issues — Jun 17, 2022
On the Issues: Gas Tax Revenues, Emissions and International Trade, and More
A biweekly newsletter connecting global current events, pressing climate and energy policy news, and economics research from RFF scholars. This week: gas tax revenues, emissions and international trade, and more.
Media Highlight — Jun 15, 2022
Quartz: "Sky-High Oil Prices Are a Unique Chance to Pay for Climate Action"
RFF Fellow Daniel Raimi Raimi is quoted in this piece, which is based around his recent blog post on how states can sustainably invest revenue from high fossil fuel taxes.
Common Resources — Jun 8, 2022
Now’s the Time: How States Can Take Advantage of High Energy Prices
Prices of coal, oil, and natural gas are spiking. Although high energy costs hurt consumers, the situation offers an opportunity for energy-producing states to invest windfall tax revenues and make communities more economically resilient in the long term.