Welfare and Distributional Implications of Shale Gas

63 Pages Posted: 27 Apr 2015 Last revised: 13 Mar 2021

See all articles by Catherine Hausman

Catherine Hausman

University of Michigan at Ann Arbor

Ryan Kellogg

University of Michigan at Ann Arbor

Date Written: April 2015

Abstract

Technological innovations in horizontal drilling and hydraulic fracturing have enabled tremendous amounts of natural gas to be extracted profitably from underground shale formations that were long thought to be uneconomical. In this paper, we provide the first estimates of broad-scale welfare and distributional implications of this supply boom. We provide new estimates of supply and demand elasticities, which we use to estimate the drop in natural gas prices that is attributable to the supply expansion. We calculate large, positive welfare impacts for four broad sectors of gas consumption (residential, commercial, industrial, and electric power), and a negative impact for producers, with variation across regions. We then examine the evidence for a gas-led "manufacturing renaissance" and for pass-through to prices of products such as retail natural gas, retail electricity, and commodity chemicals. We conclude with a discussion of environmental externalities from unconventional natural gas, including limitations of the current regulatory environment. Overall, we find that between 2007 and 2013 the shale gas revolution led to an increase in welfare for natural gas consumers and producers of $48 billion per year, but more data are needed on the extent and valuation of the environmental impacts of shale gas production.

Suggested Citation

Hausman, Catherine and Kellogg, Ryan, Welfare and Distributional Implications of Shale Gas (April 2015). NBER Working Paper No. w21115, Available at SSRN: https://ssrn.com/abstract=2599381

Catherine Hausman (Contact Author)

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Ryan Kellogg

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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