Working Paper: NBER ID: w22532
Authors: Richard G. Newell; Brian C. Prest; Ashley Vissing
Abstract: 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.
Keywords: Shale Gas; Natural Gas Extraction; Price Elasticity
JEL Codes: D24; L71; Q41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Price Shock (D44) | Unconventional Gas Production (L71) |
| Gas Prices (Q31) | Drilling Activity (L71) |
| Unconventional Wells (L71) | Gas Production (L95) |
| Gas Prices (Q31) | Conventional Wells Production (L71) |
| Unconventional Gas Production (L71) | Price Responsiveness (D40) |