Supply Flexibility in the Shale Patch: Evidence from North Dakota
42 Pages Posted: 8 Aug 2019
Date Written: August 8, 2019
This paper provides new results to the literature, showing that output flexibility in oil production depends on the extraction technology. In particular, constructing a novel well-level monthly production data set covering more than 16,000 crude oil wells in North Dakota, we find supply elasticity of shale wells to be positive and in the range of 0.3-0.9, depending on wells and firms characteristics. We find no such responses for conventional wells. We interpret the supply pattern of shale oil wells to be consistent with the Hotelling theory of optimal extraction. These results have far reaching implications for oil prices: as shale producers grow in size and importance, we should expect to see a stabilizing effect on prices.
Keywords: supply elasticity, well panel data, US shale oil boom, hotelling theory
JEL Classification: C33, L71, Q31, Q40
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