Trophy Hunting vs. Manufacturing Energy: The Price-Responsiveness of Shale Gas
Resources for the Future Discussion Paper 16-32
52 Pages Posted: 16 Oct 2016
Date Written: August 22, 2016
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 longrun price responsiveness of supply is almost 3 times larger for unconventional compared to conventional gas.
Keywords: shale gas, unconventional natural gas, price elasticity
JEL Classification: D24, L71, Q41
Suggested Citation: Suggested Citation