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The Economics of Shale Gas Development

Author

Listed:
  • Charles F. Mason

    (Department of Economics and Finance, University of Wyoming, Laramie, Wyoming 82071
    Grantham Institute, London School of Economics, London WC2A 2AZ, United Kingdom
    Resources for the Future, Washington, DC 20036)

  • Lucija A. Muehlenbachs

    (Resources for the Future, Washington, DC 20036
    Department of Economics, University of Calgary, Calgary, Alberta T2N 1N4, Canada)

  • Sheila M. Olmstead

    (Resources for the Future, Washington, DC 20036
    Lyndon B. Johnson School of Public Affairs, University of Texas, Austin, Texas 78713)

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.

Suggested Citation

  • Charles F. Mason & Lucija A. Muehlenbachs & Sheila M. Olmstead, 2015. "The Economics of Shale Gas Development," Annual Review of Resource Economics, Annual Reviews, vol. 7(1), pages 269-289, October.
    • Handle: RePEc:anr:reseco:v:7:y:2015:p:269-289
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-resource-100814-125023
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    JEL classification:

    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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