NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trophy Hunting vs. Manufacturing Energy: The Price-Responsiveness of Shale Gas

Richard G. Newell, Brian C. Prest, Ashley Vissing

NBER Working Paper No. 22532
Issued in August 2016
NBER Program(s):Environment and Energy Economics, Industrial Organization

We analyze the relative price elasticity 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. We find that the important margin is drilling investment, and neither production from existing wells nor completion times respond strongly to prices. We estimate a long-run drilling elasticity of 0.7 for both conventional and unconventional sources. Nonetheless, because unconventional wells produce on average 2.7 times more gas per well than conventional ones, the long-run price responsiveness of supply is almost 3 times larger for unconventional compared to conventional gas.

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Document Object Identifier (DOI): 10.3386/w22532

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