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Supply Flexibility in the Shale Patch: Evidence from North Dakota

Author

Listed:
  • Hilde C. Bjornland
  • Frode Martin Nordvik
  • Maximilian Rohrer

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.

Suggested Citation

  • Hilde C. Bjornland & Frode Martin Nordvik & Maximilian Rohrer, 2019. "Supply Flexibility in the Shale Patch: Evidence from North Dakota," CAMA Working Papers 2019-56, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2019-56
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-01/56_2019_bjornland_nordvik_rohrer.pdf
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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