The Shale Gas Boom in the US: Productivity Shocks and Price Responsiveness

Peer Reviewed
1 January 2019

Many studies have been focusing on the impact of the shale gas boom on our society, but the reverse relationship is not well documented. The objective of this paper is to examine the impact of oil and gas prices on shale gas drilling activities. We analyze the well-level production data from all major producing shale gas plays in the United States (US) and identify a major productivity shock in 2009. We then estimate the price elasticity of shale gas drilling using the econometric methods. Our results show that the oil price elasticity increases from insignificant in the pilot stage (2000–2008) to 1.1 (significant) in the expansion stage (2009–2016), and the gas price elasticity increases from insignificant in the pilot stage to 0.6 (significant) in the expansion stage.

This is the first quantitative estimation of shale gas drilling responsiveness to oil and gas prices based on near-full-sample well-level drilling data while taking account the structural break. The change in price elasticities indicates that the shale gas drilling becomes more responsive to oil and gas prices after the major productivity shock around 2009. The high oil-price elasticity after 2009 shows the importance of natural gas condensate in supporting shale gas drilling. The estimated oil and gas elasticities are important to forecasting shale gas supply and economic impacts in the new normal.

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Publication | 3 May 2019