1932
0
  1. Home
  2. A-Z Publications
  3. Annual Review of Resource Economics
  4. Volume 7, 2015
  5. Article

Annual Review of Resource Economics

Volume 7, 2015

The Economics of Shale Gas Development

Abstract

In the past decade, innovations in hydraulic fracturing and horizontal drilling have fueled a boom in the production of natural gas (as well as oil) from geological formations—primarily deep shales—in which hydrocarbon production was previously unprofitable. Impacts on US fossil fuel production and the US economy more broadly have been transformative, even in the first decade. The boom has been accompanied by concerns about negative externalities, including impacts to air, water, and quality of life in producing regions. We describe the economic benefits of the shale gas boom, including direct market impacts and positive externalities, providing back-of-the-envelope estimates of their magnitude. This article also summarizes the current science and economics literatures on negative externalities. We conclude that the likely scope of economic benefits is extraordinarily large and that continued research on the magnitude of negative externalities is necessary to inform risk-mitigating policies.

Keyword(s): economic benefits, environmental impacts, hydraulic fracturing, negative externalities, positive externalities
Loading

Article metrics loading...

/content/journals/10.1146/annurev-resource-100814-125023
2015-10-05
2024-04-19
Loading full text...

Full text loading...

/deliver/fulltext/resource/7/1/annurev-resource-100814-125023.html?itemId=/content/journals/10.1146/annurev-resource-100814-125023&mimeType=html&fmt=ahah

Literature Cited

  1. Abdalla CW, Roach BA, Epp DJ. 1992. Valuing environmental quality changes using averting expenditures: an application to groundwater contamination. Land Econ. 68:2163–69 [Google Scholar]
  2. Allcott H, Keniston D. 2014. Dutch disease or agglomeration? The local economic effects of natural resource booms in modern America. NBER Work. Pap. 20508
  3. Allen DT, Torres VM, Thomas J, Sullivan DW, Harrison M et al. 2013. Measurements of methane emissions at natural gas production sites in the United States. PNAS 110:4417768–73 [Google Scholar]
  4. Arora V. 2014. Estimates of the price elasticities of natural gas supply and demand in the United States. Work. Pap. 54,232, MPRA
  5. Arrow KJ, Cropper ML, Eads GC, Hahn RW, Lave LB et al. 1996. Is there a role for benefit-cost analysis in environmental, health and safety regulation?. Science 272:5259221–22 [Google Scholar]
  6. Baumol W, Oates W. 1988. The Theory of Environmental Policy New York: Cambridge Univ. Press, 2nd ed..
  7. Bernstein P, Kinnaman TC, Wu M. 2013. Estimating willingness to pay for river amenities and safety measures associated with shale gas extraction. East. Econ. J. 39:128–44 [Google Scholar]
  8. Bohi DR, Toman MA. 1993. Energy security: externalities and policies. Energy Policy 21:111093–109 [Google Scholar]
  9. Boslett A, Guilfoos T, Lang C. 2014. Valuation of expectations: a hedonic study of shale gas development, a statewide moratorium, and local resolutions. Work. Pap., Dep. Nat. Resour. Environ. Econ., Univ. R. I.
  10. Boyle KJ, Poe GL, Bergstrom JC. 1994. What do we know about groundwater values? Preliminary implications from a meta analysis of contingent-valuation studies. Am. J. Agric. Econ. 76:1055–61 [Google Scholar]
  11. Brandt AR, Heath GA, Kort EA, O’Sullivan F, Petron G et al. 2014. Methane leaks from North American natural gas systems. Science 343:6172733–35 [Google Scholar]
  12. Brasier KJ, Filteau MR, McLaughlin DK, Jacquet J, Stedman RC et al. 2011. Residents’ perceptions of community and environmental impacts from development of natural gas in the Marcellus Shale: a comparison of Pennsylvania and New York cases. J. Rural Soc. Sci. 26:132–61 [Google Scholar]
  13. Brown SPA, Huntington HG. 2013. Assessing the U.S. oil security premium. Energy Econ. 38:118–27 [Google Scholar]
  14. Brown SPA, Krupnick AJ. 2010. Abundant shale gas resources: long-term implications for U.S. natural gas markets. Work. Pap., Resour. Future
  15. Brunnschweiler CN, Bulte EH. 2008. The resource curse revisited and revised: a tale of paradoxes and red herrings. J. Environ. Econ. Manag. 55:248–64 [Google Scholar]
  16. Burtraw D, Palmer K, Paul A, Woerman M. 2012. Secular trends, environmental regulations, and electricity markets. Electr. J. 25:635–47 [Google Scholar]
  17. Caselli F, Michaels G. 2013. Do oil windfalls improve living standards? Evidence from Brazil. Am. Econ. J. 5:1208–38 [Google Scholar]
  18. Characklis GW, Griffin RC, Bedient PB. 2005. Measuring the long-term regional benefits of salinity reduction. J. Agric. Resour. Econ. 30:169–93 [Google Scholar]
  19. Cullen JA, Mansur ET. 2013. Will carbon prices reduce emissions in the U.S. electricity industry? Evidence from the shale gas experience. Work. Pap., Olin Bus. Sch., Wash. U.
  20. Cutter WB. 2007. Valuing groundwater recharge in an urban context. Land Econ. 83:234–52 [Google Scholar]
  21. Darrah TH, Vengosh A, Jackson RB, Warner NR, Poreda RJ. 2014. Noble gases identify the mechanisms of fugitive gas contamination in drinking-water wells overlying the Marcellus and Barnett Shales. PNAS 111:3914076–81 [Google Scholar]
  22. Delgado MS, Guilfoos T, Boslett A. 2014. The cost of hydraulic fracturing: a hedonic analysis. Work. Pap., Dep. Agric. Econ., Purdue Univ.
  23. Deutch J. 2011. The good news about gas: the natural gas revolution and its consequences. Foreign Aff. 90:182–93 [Google Scholar]
  24. Doherty KE, Naugle DE, Evans JS. 2010. A currency for offsetting energy development impacts: horse-trading sage-grouse on the open market. PLOS ONE 5:41–9 [Google Scholar]
  25. Drohan PJ, Brittingham M, Bishop J, Yoder K. 2012. Early trends in landcover change and forest fragmentation due to shale-gas development in Pennsylvania: a potential outcome for the Northcentral Appalachians. Environ. Manag. 49:51061–75 [Google Scholar]
  26. Ellsworth WL. 2013. Injection-induced earthquakes. Science 341:61421225942 [Google Scholar]
  27. Entrekin S, Evans-White M, Hagenbuch JB. 2011. Rapid expansion of natural gas development poses a threat to surface waters. Front. Ecol. Environ. 9:503–11 [Google Scholar]
  28. Fahrig L. 2003. Effects of habitat fragmentation on biodiversity. Annu. Rev. Ecol. Evol. Syst. 34:487–515 [Google Scholar]
  29. Fell HG, Kaffine D. 2014. What’s killing coal? The effects of natural gas abundance and renewables on coal-fired plants. Work. Pap., Div. Econ. Bus., Colo. Sch. Mines
  30. Fetzer T. 2014. Fracking growth. Discuss. Pap. 1,278, Cent. Econ. Perform., Lond. Sch. Econ.
  31. Feyrer J, Mansur ET, Sacerdote B. 2014. Where’s my fracking job? Geographic dispersions of economic shocks from hydrofracturing. Work. Pap., Dep. Econ., Dartmouth Coll.
  32. Fitzgerald T, Rucker RR. 2014. US private oil and natural gas royalties: estimates and policy considerations. Work. Pap., Dep. Agric. Econ. Econ., Mont. State Univ.
  33. Fox J, dir. 2010. Gasland. Video
  34. Gamper-Rabindran S. 2014. Information collection, access, and dissemination to support evidence-based shale gas policies. Energy Technol. 2:977–87 [Google Scholar]
  35. Gilman JB, Lerner BM, Kuster WC, Gouw JAD. 2013. Source signature of volatile organic compounds from oil and natural gas operations in northeastern Colorado. Environ. Sci. Technol. 47:31297–305 [Google Scholar]
  36. Gopalakrishnan S, Klaiber HA. 2014. Is the shale energy boom a bust for nearby residents? Evidence from housing values in Pennsylvania. Am. J. Agric. Econ. 96:143–66 [Google Scholar]
  37. Hanak E. 2005. Stopping the drain: third-party responses to California’s water market. Contemp. Econ. Policy 23:59–77 [Google Scholar]
  38. Hansen LT, Hallam A. 1991. National estimates of the recreational value of streamflow. Water Resour. Res. 27:167–75 [Google Scholar]
  39. Healy J. 2013. As oil floods plains towns, crime pours in. N. Y. Times, Nov. 30
  40. Helmig D, Thomson CR, Evans J, Huebar BJ, Park JH. 2014. Highly elevated atmospheric levels of volatile organic compounds in the Uintah Basin, Utah. Environ. Sci. Technol. 48:94707–15 [Google Scholar]
  41. Hill E. 2012. Shale gas development and infant health: evidence from Pennsylvania. Work. Pap., Dep. Appl. Econ. Manag., Cornell Univ.
  42. Hill E. 2013. The impact of oil and gas extraction on infant health in Colorado. Work. Pap., Dep. Appl. Econ. Manag., Cornell Univ.
  43. Holladay JS, LaRiviere J. 2014. How does welfare from non-pecuniary policies vary with market prices? Evidence from fracking, natural gas and emissions from electricity generation. Work. Pap., Univ. Tenn., Knoxville
  44. Horwitz S. 2014. Dark side of the boom. Wash. Post, Sept. 28
  45. IPCC. 2001. Climate Change 2001: The Scientific Basis. Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on Climage Change. Cambridge, UK/New York: Cambridge Univ. Press
  46. Jacobsen GD, Parker DP. 2015. The economic aftermath of resource booms: evidence from boomtowns in the American West. Econ. J. In press; doi: 10.1111/ecoj.12173
  47. Jacoby HD, O’Sullivan FM, Paltsev S. 2012. The influence of shale gas on U.S. energy and environmental policy. Econ. Energy Environ. Policy 1:137–51 [Google Scholar]
  48. James A, James J. 2014. A canary near a gas well: gas booms and housing market busts in Colorado. Work. Pap., Dep. Econ. Public Policy, Univ. Alsk., Anchorage
  49. James A, Smith B. 2014. There will be blood: crime rates in shale-rich U.S. counties. Work. Pap. 140, OxCarre, Univ. Oxford
  50. Jenner S, Lamadrid AJ. 2013. Shale gas vs. coal: policy implications from environmental impact comparisons of shale gas, conventional gas and coal on air, water and land in the United States. Energy Policy 53:442–53 [Google Scholar]
  51. Jiang M, Hendrickson CT, VanBriesen JM. 2014. Life cycle water consumption and wastewater generation impacts of a Marcellus Shale gas well. Environ. Sci. Technol. 48:1911–20 [Google Scholar]
  52. Johnson J, Tullo AH. 2013. Chemical and gas suppliers battle over LNG exports. Chem. Eng. News 91:109–13 [Google Scholar]
  53. Joskow PL. 2013. Natural gas: from shortage to abundance in the United States. Am. Econ. Rev. Proc. 103:3338–43 [Google Scholar]
  54. Graham J, Irving J, Tang X, Sellers S, Crisp J et al. 2015. Increased traffic accident rates associated with shale gas drilling in Pennsylvania. Accid. Anal. Prev. 74:203–9 [Google Scholar]
  55. Kemball-Cook S, Bar-Ilan A, Grant J, Parker L, Jung J et al. 2010. Ozone impacts of natural gas development in the Haynesville Shale. Environ. Sci. Technol. 44:249357–63 [Google Scholar]
  56. King GE. 2012. Hydraulic Fracturing 101: what every representative, environmentalist, regulator, reporter, investor, university researcher, neighbor and engineer should know about estimating frac risk and improving frac performance in unconventional oil and gas wells. Presented at Soc. Pet. Eng. Hydraul. Fract. Technol. Conf., Woodlands, Tex., Feb. 6–8
  57. Knittel CR, Metaxoglou K, Trindade A. 2014. Dash for gas: the sequel. Work. Pap., Sloan Sch. Manag., MIT
  58. Krauss C. 2014. OPEC split as oil prices fall sharply. N. Y. Times, Oct. 13
  59. Krichene N. 2002. World crude oil and natural gas: a demand and supply model. Energy Econ. 24:6557–76 [Google Scholar]
  60. Krupnick A, Gordon H, Olmstead S. 2013a. Pathways to dialogue: what the experts say about the environmental risks of shale gas development. Work. Pap., Resour. Future
  61. Krupnick A, Wang Z, Wang Y. 2013b. Sector effects of the shale gas revolution in the United States. Work. Pap., Resour. Future
  62. Kuwayama Y, Krupnick A, Olmstead S. 2014. Water resources and unconventional fossil fuel development: linking physical impacts to social costs. Work. Pap., Resour. Future
  63. LaRiviere J, Shapiro J, Tefft N, Wolff H. 2014. Quantifying environmental benefits of fracking: the decline of coal, air quality and asthma rates. Work. Pap., Dep. Econ., Univ. Tenn., Knoxville
  64. Leiby P. 2007. Estimating the energy security benefits of reduced U.S. oil imports. Rep. ORNL/TM-2007/028, Oak Ridge Natl. Lab.
  65. Linn J, Mastrangelo E, Burtraw D. 2014a. Regulating greenhouse gases from coal power plants under the Clean Air Act. J. Assoc. Environ. Resour. Econ. 1:197–134 [Google Scholar]
  66. Linn J, Muehlenbachs L, Wang Y. 2014b. How do low natural gas prices affect electricity consumers and the environment? Work. Pap., Resour. Future
  67. Litovitz A, Curtright A, Abramzon S, Burger N, Samaras C. 2013. Estimation of regional air-quality damages from Marcellus Shale natural gas extraction in Pennsylvania. Environ. Res. Lett. 8:1014017 doi: 10.1088/1748-9326/8/1/014017 [Google Scholar]
  68. Loomis J, Kent P, Strange L, Fausch K, Covich A. 2000. Measuring the total economic value of restoring ecosystem services in an impaired river basin: results from a contingent valuation survey. Ecol. Econ. 33:103–17 [Google Scholar]
  69. Loomis JB. 1987. The economic value of instream flow: methodology and benefit estimates for optimum flows. J. Environ. Manag. 24:169–79 [Google Scholar]
  70. Maniloff P, Mastromonaco R. 2014. The local economic impacts of unconventional shale development. Work. Pap., Div. Econ. Bus., Colo. Sch. Mines
  71. Marchand J. 2012. Local labor market impacts of energy boom-bust-boom in Western Canada. J. Urban Econ. 71:1165–74 [Google Scholar]
  72. McKenzie LM, Guo R, Witter RZ, Savitz DA, Newman LS, Adgate JL. 2014. Birth outcomes and maternal residential proximity to natural gas development in rural Colorado. Environ. Health Perspect. 122:4412–17 [Google Scholar]
  73. Metcalf GE. 2014. The economics of energy security. Annu. Rev. Resour. Econ 6:155–74 [Google Scholar]
  74. Michaels G. 2010. The long term consequences of resource-based specialisation. Econ. J. 121:55131–57 [Google Scholar]
  75. Miller SM, Wofsy SC, Michalak AM, Kort EA, Andrews AE et al. 2013. Anthropogenic emissions of methane in the United States. PNAS 110:5020018–22 [Google Scholar]
  76. Mitchell AL, Mitchell S, Casman EA. 2013. Surface water withdrawals for Marcellus Shale gas development: performance of alternative regulatory approaches in the Upper Ohio River Basin. Environ. Sci. Technol. 47:4918–25 [Google Scholar]
  77. Muehlenbachs L. 2015. A dynamic model of cleanup: estimating sunk costs in oil and gas production. Int. Econ. Rev. 56:1155–85 [Google Scholar]
  78. Muehlenbachs L, Spiller E, Timmins C. 2014. The housing market impacts of shale gas development. NBER Work. Pap. 19796
  79. Murray KE. 2013. State-scale perspective on water use and production associated with oil and gas operations, Oklahoma, U.S. Environ. Sci. Technol. 47:4918–25 [Google Scholar]
  80. Nicot JP, Scanlon BR. 2012. Water use for shale-gas production in Texas, U.S. Environ. Sci. Technol. 46:3580–86 [Google Scholar]
  81. Nicot JP, Scanlon BR, Reedy RC, Costley RA. 2014. Source and fate of hydraulic fracturing water in the Barnett Shale: a historical perspective. Environ. Sci. Technol. 48:2464–71 [Google Scholar]
  82. Northam J. 2014. German chemical giant BASF benefits from cheap U.S. gas. NPR, Morning Edition, Mar. 26
  83. Northrup JM, Wittemyer G. 2013. Characterising the impacts of emerging energy development on wildlife, with an eye towards mitigation. Ecol. Lett. 15:1112–25 [Google Scholar]
  84. Ojeda MI, Mayer AS, Solomon BD. 2008. Economic valuation of environmental services sustained by water flows in the Yaqui River Delta. Ecol. Econ. 65:155–66 [Google Scholar]
  85. Oliver ME, Mason CF, Finnoff D. 2014. Pipeline congestion and basis differentials. J. Regul. Econ. 46:261–91 [Google Scholar]
  86. Olmstead SM. 2010. The economics of water quality. Rev. Environ. Econ. Policy 4:144–62 [Google Scholar]
  87. Olmstead SM, Muehlenbachs LA, Shih J-S, Chu Z, Krupnick AJ. 2013. Shale gas development impacts on surface water quality in Pennsylvania. PNAS 110:134962–67 [Google Scholar]
  88. Osborn SG, Vengosh A, Warner NR, Jackson RB. 2011. Methane contamination of drinking water accompanying gas-well drilling and hydraulic fracturing. PNAS 108:208172–76 [Google Scholar]
  89. Papoulias DM, Velasco AL. 2013. Histopathological analysis of fish from Acorn Fork Creek, Kentucky, exposed to hydraulic fracturing fluid releases. Southeast. Nat. 12:492–111 [Google Scholar]
  90. Parkhurst GM, Shogren JF, Bastian C, Kivi P, Donner J et al. 2002. Agglomeration bonus: an incentive mechanism to reunite fragmented habitat for biodiversity conservation. Ecol. Econ. 41:2305–28 [Google Scholar]
  91. Poor PJ, Pessagno KL, Paul RW. 2007. Exploring the hedonic value of ambient water quality: a local watershed-based study. Ecol. Econ. 60:4797–806 [Google Scholar]
  92. Provencher B, Burt O. 1993. The externalities associated with the common property exploitation of groundwater. J. Environ. Econ. Manag. 24:139–58 [Google Scholar]
  93. Raimi D, Newell RG. 2014. Oil and gas revenue allocation to local government in eight states. Work. Pap., Duke Univ. Energy Initiat.
  94. Sachs JD, Warner AM. 1995. Natural resource abundance and economic growth. NBER Work. Pap. 5398
  95. Siikamäki J, Krupnick A. 2014. Information and the willingness to pay to reduce shale gas risks. Presented at World Congr. Environ. Resour. Econ., 5th, Istanbul, June 28–July 2
  96. Smith JL. 2014. The option to hold a petroleum lease by production: a user's guide to the shale gas drilling boom. Work. Pap., Sch. Bus., South. Methodist Univ.
  97. Smith MD, Krannich RS, Hunter LM. 2001. Growth, decline, stability, and disruption: a longitudinal analysis of social well-being in four western rural communities. Rural Sociol. 66:3425–50 [Google Scholar]
  98. Stegen KS. 2011. Deconstructing the “energy weapon”: Russia's threat to Europe as case study. Energy Policy 39:106505–13 [Google Scholar]
  99. Sun H, Bergstrom J, Dorfman J. 1992. Estimating the benefits of groundwater contamination control. South. J. Agric. Econ. 24:263–71 [Google Scholar]
  100. Theodori GL. 2009. Paradoxical perceptions of problems associated with unconventional natural gas development. South. Rural Sociol. 24:397–117 [Google Scholar]
  101. Unconv. Oil Gas Rep. 2013. Haynesville continues decline as operators seek out wet gas plays. Unconv. Oil Gas Rep., Dec. 13
  102. US Energy Information Administration 2007. Annual energy outlook 2007, with projections to 2030. Rep., US Energy Information Administration. http://www.eia.gov/forecasts/archive/aeo07/pdf/0383(2007).pdf
  103. US Energy Information Administration 2011. “Other” petroleum products consumption module—short-term energy outlook model. Rep., US Energy Information Administration. http://www.eia.gov/forecasts/steo/documentation/other_petroleum_cons.pdf
  104. US Energy Information Administration 2014a. Annual energy outlook 2014, with projections to 2040. Rep., US Energy Information Administration. http://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdf
  105. US Energy Information Administration 2014b. Some Appalachian natural gas spot prices are well below the Henry Hub national benchmark. Rep., US Energy Information Administration. http://www.eia.gov/todayinenergy/detail.cfm?id=18391
  106. US Environmental Protection Agency. 2014a. Guidelines for preparing economic analyses. Rep. 240-R-10-001, US Environmental Protection Agency
  107. US Environmental Protection Agency. 2014b. Inventory of U.S. greenhouse gas emissions and sinks: 1990–2012. Rep. 430-R-14-003, US Environmental Protection Agency
  108. Van der Ploeg F. 2011. Natural resources: curse or blessing?. J. Econ. Lit. 49:2366–420 [Google Scholar]
  109. Veil J. 2010. Water management technologies used by Marcellus Shale gas producers. Final Rep., Argonne Natl. Lab. for US Dep. Energy
  110. Vengosh A, Jackson RB, Warner N, Darrah TH, Kondash A. 2014. A critical review of the risks to water resources from unconventional shale gas development and hydraulic fracturing in the United States. Environ. Sci. Technol. 48:158334–48 [Google Scholar]
  111. Venkatesh A, Jaramilo P, Griffin WM, Matthews HS. 2012. Implications of changing natural gas prices in the United States electricity sector for SO2, NOx and life cycle GHG emissions. Environ. Res. Lett. 7:3034018 [Google Scholar]
  112. Vissing A, Timmins C. 2014. Shale gas leases: Is bargaining efficient and what are the implications for homeowners if it is not? Work. Pap., Dep. Econ., Duke Univ.
  113. Warner NR, Christie CA, Jackson RB, Vengosh A. 2013a. Impacts of shale gas wastewater disposal on water quality in Western Pennsylvania. Environ. Sci. Technol. 47:11849–57 [Google Scholar]
  114. Warner NR, Timothy M, Kresse PD, Hays AD, Karr JD et al. 2013b. Geochemical and isotopic variations in shallow groundwater in areas of the Fayetteville Shale development, north-central Arkansas. Appl. Geochem. 35:207–20 [Google Scholar]
  115. Weber JG. 2012. The effects of a natural gas boom on employment and income in Colorado, Texas, and Wyoming. Energy Econ. 34:51580–88 [Google Scholar]
  116. Weber JG, Burnett J, Xiarchos IM. 2014. Shale gas development and housing values over a decade: evidence from the Barnett Shale. Work. Pap. 14-165, US Assoc. Energy Econ.
  117. Wilson JM, Van Briesen JM. 2013. Source water changes and energy extraction activities in the Monongahela River, 2009–2012. Environ. Sci. Technol. 47:12575–82 [Google Scholar]
  118. Zhang T, Gregory K, Hammack RW, Vidic RD. 2014. Co-precipitation of radium with barium and strontium sulfate and its impact on the fate of radium during treatment of produced water from unconventional gas extraction. Environ. Sci. Technol. 48:4596–603 [Google Scholar]
  119. Zuckerman G. 2013. The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters New York: Penguin
/content/journals/10.1146/annurev-resource-100814-125023
Loading
The Economics of Shale Gas Development
Annual Review of Resource Economics 7, 269 (2015); https://doi.org/10.1146/annurev-resource-100814-125023
/content/journals/10.1146/annurev-resource-100814-125023
/content/journals/10.1146/annurev-resource-100814-125023
Loading

Data & Media loading...

  • Article Type: Review Article

Most Cited Most Cited RSS feed

This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error