Abstract
AbstractHydraulic fracturing (HF) has transformed the North American oil and gas industry, leading to increased consumer surplus and reduced carbon emissions. While HF may have similar potential for the developing world, adoption has been limited to date, plausibly because of perceptions of potential local costs and the need to develop technical proficiency. We empirically evaluate the incremental contribution of HF in the United States. We find considerable evidence of differences in application and productivity across operating firms and vertical pairings of firms, suggesting intellectual property and learning by doing may both play important roles. At the same time, secrecy regarding the chemical composition of fluids used in HF is a potential deterrent to its application for fear of local costs. Developing countries must accommodate these characteristics if adoption of HF is to help meet energy demands and achieve climate policy goals.
Highlights
Hydraulic fracturing (HF) has transformed the North American oil and gas industry and, by extension, the global natural gas market (Rogers, 2011; Yergin, 2011; Jacoby et al, 2012; Hefner, 2014)
In the past 15 years, innovations in HF and horizontal drilling have fueled a boom in the production of natural gas and oil from geological formations – primarily deep shales – in which hydrocarbon production was previously unprofitable
Given the widespread endowment of similar resources in developing countries, understanding where the productivity gains of HF come from is central to promoting diffusion of the technology
Summary
Hydraulic fracturing (HF) has transformed the North American oil and gas industry and, by extension, the global natural gas market (Rogers, 2011; Yergin, 2011; Jacoby et al, 2012; Hefner, 2014). Increased natural gas production in the United States (US) has had important impacts on markets, generating benefits to consumers and producers alike (Mason et al, 2015; Hausman and Kellogg, 2016). Exports from Argentina to Chile, Uruguay and Brazil have increased markedly over the last few years; exports of liquified natural gas have increased (EIA, 2019) This creates an opportunity for developing countries to further their economic, energy, and climate goals by exploiting their own resources. Toxic substances that help increase productivity in HF must be considered as part of the technology adoption process This will require consideration of the interaction between intellectual property and environmental protection, as well as tradeoffs between deployment of HF and local demands for clean water. It may be desirable to offer multiple tenders to allow productivity differences to bear themselves out
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