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

52 Pages Posted: 22 Aug 2016

See all articles by Richard G. Newell

Richard G. Newell

Duke University - Nicholas School of Environment; National Bureau of Economic Research (NBER); Resources for the Future

Brian Prest

Duke University

Ashley Vissing

Duke University

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Date Written: August 2016

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.

Suggested Citation

Newell, Richard G. and Prest, Brian and Vissing, Ashley, Trophy Hunting vs. Manufacturing Energy: The Price-Responsiveness of Shale Gas (August 2016). NBER Working Paper No. w22532, Available at SSRN: https://ssrn.com/abstract=2827450

Richard G. Newell (Contact Author)

Duke University - Nicholas School of Environment ( email )

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Brian Prest

Duke University ( email )

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Ashley Vissing

Duke University ( email )

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