Market tremors: Shale gas exploration, earthquakes, and their impact on house prices

Stephen Gibbons,Stephan Heblich,Christopher Timmins

doi:10.1016/j.jue.2020.103313

Abstract

Shale gas has grown to become a major new source of energy in countries around the globe. While its importance for energy supply is well recognized, there has also been public concern over potential risks from hydraulic fracturing (‘fracking’). Although commercial development has not yet taken place in the UK, licenses for drilling were issued in 2008, signalling potential future development. This paper examines whether public fears about fracking affect house prices in areas that have been licensed for shale gas exploration. Our estimates suggest differentiated effects. Licensing did not affect house prices but fracking the first well in 2011, which caused two minor earthquakes, did. We find a 3.9–4.7 percent house price decrease in the area where the earthquakes occurred. The earthquakes were too minor to have caused any damage but we find the effect on prices extends to a radius of about 25 km served by local newspapers. This evidence suggests that the earthquakes and newspaper coverage increased awareness of exploration activity and fear of the local consequences.

Highlights

The advent of cost-reducing technological innovations associated with hydraulic fracturing and horizontal drilling has propelled shale gas to become one of the most promising and viable new global sources of energy
12 In the robustness checks, we compare this to an alternative specification where we deflate house prices with an annual price index instead of flexible time trends
We extend our set of control variables and we find small house price effects between 0.4 and 1.1 percent in the licensed areas overall and negative house price effects between 2.1 and 2.8 percent in the areas where shale gas development was mentioned

Summary

Introduction

The advent of cost-reducing technological innovations associated with hydraulic fracturing and horizontal drilling has propelled shale gas to become one of the most promising and viable new global sources of energy. With the discovery of large reserves around the world, shale gas can support global energy needs for decades. Shale gas development has raised concerns about externalities (i.e., environmental, disamenity, and other costs borne by nearby landowners and other stakeholders besides the drilling company).. Large amounts of high-pressure water and additives are used to fracture the rock layer and release embedded shale gas. The water is transported by trucks, raising concerns about noise, road damage and accidents due to increased traffic (Balthrop and Hawley, 2017; Gilman et al, 2013; Muehlenbachs and Krupnick, 2014). In the US, these costs may be compensated to some degree, with many US households owning the rights to their underlying minerals and receiving offsetting lease payments

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Conclusion