RFF Resources for Future : The Shale Boom’s Impact on the US Oil and Gas Industry

WASHINGTON-Resources for the Future (RFF) today posted a new issue brief titled, 'How the Shale Boom Has Transformed the US Oil and Gas Industry.' The US shale revolution of the past decade has unlocked vast reserves of 'tight' oil, allowing drillers to extract more oil and gas from larger subsurface acreage using fewer wellbores and with much higher production per well. This study quantifies the effects of the shale revolution on the price responsiveness of US oil and gas supply.

To assess this, authors RFF President Richard G. Newell and RFF Fisher Dissertation Fellow Brian C. Prest analyzed drilling and production data from approximately 62,000 gas wells in Texas and 164,000 oil wells in the five major oil-producing states during 2000-2015.

Among their conclusions: 'The shale revolution has dramatically changed the position of the United States as an energy producer, allowing the oil and gas sectors to more easily ramp up production in response to price changes. This has important implications for US policymakers and businesses.'

In particular, the authors find that US oil supply is nine times as responsive in recent years compared to the pre-shale era of 2000-2005, while US gas supply is three times as responsive. However, due to the time it takes for drilling activity to ramp up and for drilled wells to begin production, it takes many months for most of the incremental supply to come online. This is longer than typically considered for a 'swing producer,' indicating a continued relevance of the US Strategic Petroleum Reserve and strategic oil stock holdings by other countries, as well as the maintenance of spare production capacity by countries such as Saudi Arabia.

Their analysis suggests that if oil prices were to rise from $50 to $80 per barrel, US suppliers could ramp up production by 0.5 million barrels per day in six months, 1.2 million in one year, 2 million in two years, and 3 million in five years. These represent substantial increases in the context of the global market-implying a significantly larger role for the US incremental supply than before the shale revolution, regardless of whether or not the nation currently fits the bill to act as a swing producer.

Read the full issue brief: How the Shale Boom Has Transformed the US Oil and Gas Industry.

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Resources for the Future (RFF) is an independent, nonpartisan organization based in Washington, DC, that conducts rigorous economic research and analysis to improve environmental and natural resource policy.