Supply Flexibility in the Shale Patch: Evidence from North Dakota

42 Pages Posted: 8 Aug 2019

See all articles by Hilde C. Bjørnland

Hilde C. Bjørnland

Norwegian School of Management (BI); Norges Bank

Frode Martin Nordvik

Kristiania University College

Maximilian Rohrer

NHH - Norwegian School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 8, 2019

Abstract

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

Suggested Citation

Bjørnland, Hilde C. and Nordvik, Frode Martin and Rohrer, Maximilian, Supply Flexibility in the Shale Patch: Evidence from North Dakota (August 8, 2019). CAMA Working Paper No. 56/2019, Available at SSRN: https://ssrn.com/abstract=3434198 or http://dx.doi.org/10.2139/ssrn.3434198

Hilde C. Bjørnland (Contact Author)

Norwegian School of Management (BI) ( email )

P.O. Box 580
N-1302 Sandvika
Norway

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Frode Martin Nordvik

Kristiania University College ( email )

Prinsens gate 7-9
Oslo, 0152
Norway

Maximilian Rohrer

NHH - Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

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