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The Disconnect between Productivity and Profits in U.S. Oil and Gas Extraction

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Abstract

U.S. oil and gas production boomed during the years leading up to the pandemic. From 2011 to 2019, oil production more than doubled and dry natural gas production rose by more than half. Remarkably, these gains occurred despite lackluster investment spending and hiring. Instead, higher production came largely from productivity gains, via wider adoption of fracking technologies. More recently, production recovered sluggishly from the pandemic downturn despite a quick recovery in prices. Our analysis in this post suggests that slower productivity growth and investors’ demand for higher returns have made U.S. firms willing to boost output only at a higher threshold oil price.

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  • Matthew Higgins & Thomas Klitgaard, 2022. "The Disconnect between Productivity and Profits in U.S. Oil and Gas Extraction," Liberty Street Economics 20220817, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:94656
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    File URL: https://libertystreeteconomics.newyorkfed.org/2022/08/the-disconnect-between-productivity-and-profits-in-u-s-oil-and-gas-extraction/
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    Keywords

    oil; natural gas extraction; productivity; profits; multifactor productivity (MFP); United States; fracking; inflation;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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