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Economics of Energy & Environmental Policy
Volume 4, Number 1

A Retrospective Review of Shale Gas Development in the United States: What Led to the Boom?

Zhongmin Wang and Alan Krupnick

DOI: http://dx.doi.org/10.5547/2160-5890.4.1.zwan
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This paper reviews the economic, policy, and technology history of shale gas development in the United States. We aim primarily to answer the question of what led to the shale gas boom in the United States to help inform stakeholders in those countries that are attempting to develop their own shale gas resources. Our review finds that government policy, private entrepreneurship, private land and mineral rights ownership, high natural gas prices in the 2000s, and a number of other factors all played important roles in generating the technology innovations underlying the shale gas boom.

Factors influencing shale gas production forecasting: Empirical studies of Barnett, Fayetteville, Haynesville, and Marcellus Shale plays

S. Ikonnikova, J. Browning, G. Gulen, K. Smye, and S.W. Tinker

DOI: http://dx.doi.org/10.5547/2160-5890.4.1.siko
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This paper reviews major findings and insights from a series of integrated geologic, engineering, economic, and econometric analyses performed on the four largest U.S. shale gas plays. Developments in the Barnett Shale, Fayetteville Shale, Haynesville Shale, and Marcellus Shale plays are explained on the basis of a comprehensive data set, including existing wells production histories, drilling path data, geologic attributes and natural gas market parameters. The paper presents the data-driven methodology consistently applied to all four plays. The key insights discussed include the relationship between a play's geology and well production; the impact of technological improvements of well productivity and inventory of future wells; and the dependence of well economics on geology, technology, and regulations.

Macroeconomic Impacts of LNG Exports from the United States

Robert Baron, Paul Bernstein, W. David Montgomery, and Sugandha Tuladhar

DOI: http://dx.doi.org/10.5547/2160-5890.4.1.rbar
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In contrast to what has been a common belief still ten years ago, the prevailing wisdom now is that U.S. natural gas demand can be met entirely with natural gas produced domestically and at relatively low prices (around $5/MMBtu). Moreover, there might even be the opportunity for the U.S. to become a net exporter of natural gas. In this vein, DOE tasked NERA with a first study in order to help it to determine if natural gas exports are in the public interest, as required by the Natural Gas Act before exports may start. We estimated the economic impacts under a number of LNG export scenarios that incorporated uncertainties about the supply of natural gas in the U.S. and demand for LNG in the rest of the world. In a follow-up study, we used updated AEO assumptions and an enhanced modeling framework. This paper summarizes our findings and potential geopolitical implications of U.S. LNG exports.

Heterogeneity of State Shale Gas Regulations

Alan Krupnick, Nathan Richardson, and Madeline Gottlieb

DOI: http://dx.doi.org/10.5547/2160-5890.4.1.akru
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The rapid rise in shale gas production has affected the role and importance of regulatory policy at all levels of government. As the primary regulator in this area, state level regulatory changes are particularly significant. As shale gas production increases, some states are updating their regulations, while others maintain dated rules, put in place prior to hydraulic fracturing that may or may not address environmental issues specific to modern shale gas development or recent concerns about environmental impacts. Our research finds that state regulation is remarkably heterogeneous. Regulatory heterogeneity includes heterogeneity in the stringency of state regulations. Though heterogeneity in state regulation is not inherently good or bad, our limited data suggests that the heterogeneity is neither explained by differences in state conditions, nor does it necessarily reflect indicators of regulatory capture. The paper also compares the use of regulations to use of liability law, voluntary practices, and information provision. In addition, it identifies new activities being regulated and areas where additional regulation may be needed.

Economics and Politics of Shale Gas in Europe

Chi Kong Chyong and David M. Reiner

DOI: http://dx.doi.org/10.5547/2160-5890.4.1.cchy
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In the wake of the dramatic growth in shale gas production in the United States, interest in shale gas exploration in Europe has been driven primarily by concerns over industrial competitiveness and energy security. A number of studies have been carried out to understand the success factors underpinning the US shale gas revolution and how this success could be replicated in Europe. Most of these studies focus on the macroeconomic and energy market impact of a possible shale gas production in Europe. These studies are in general sceptical about the prospects of shale gas development relative to other gas supply options to Europe. By considering the other options available in greater detail and exploring the stochastic nature of shale gas exploration and production as they apply to production economics, we conclude that this scepticism may be overstated. Apart from political opposition that has shut down shale gas exploration in a number of European member states because of concerns over environmental risks, in some countries notably the UK, the combination of political support and a large, liberalised gas market may offer at least a plausible case for shale gas production. To properly assess the potential for shale gas though, a more rigorous, probabilistic analysis of the associated production economics will need to be carried out.

Offshore grids for renewables: do we need a particular regulatory framework?

Leonardo Meeus

DOI: http://dx.doi.org/10.5547/2160-5890.4.1.lmee
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Onshore, generators are connected to the transmission grid by TSOs. This regulatory model could simply be extended to offshore (i.e. Germany), but the connection of offshore wind farms to shore is also an opportunity to test alternatives, i.e. the third party model (i.e. the UK) or the generator model (i.e. Sweden). In this paper, we argue that the third party and generator models are indeed better suited to support the evolution towards larger scale offshore wind farms that are increasingly developed farther out to sea, while the TSO model is better suited to support the evolution towards cross-border offshore grid projects. In other words, an important trade-off needs to be made because none of the existing regulatory models can fulfill all the expectations in the current context in Europe. And, the trade-off has to be made at the regional or EU level because the different national regulatory frameworks are incompatible when applied to a cross-border offshore grid project.

Irish and British electricity prices: what recent history implies for future prices

Paul Deane, John FitzGerald, Laura Malaguzzi Valeri, Aidan Tuohy and Darragh Walsh

DOI: http://dx.doi.org/10.5547/2160-5890.3.2.pdea
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This paper compares retail and wholesale electricity prices in SEM, the market of the island of Ireland, and BETTA in Great Britain. Estimated wholesale costs are much lower in BETTA. We show that this is mostly because the wholesale price in BETTA is set too low to cover generation costs, although it is compensated by large retail margins. The need for substantial new investment in generation in Great Britain suggests that returns to generators will have to increase. This should be accompanied by a decrease in retail margins to avoid overburdening final consumers. Renewable support in Great Britain appears very expensive when compared to Ireland.

European experiences with white certifirecate obligations: A critical review of existing evaluations

Louis-Gaetan Giraudet and Dominique Finon

DOI: http://dx.doi.org/10.5547/2160-5890.4.1.lgir
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White certificate obligations impose energy savings targets on energy companies and allow them to trade energy savings certificates. They can be seen as a means of internalizing energy-use externalities and addressing energy efficiency market failures. This paper reviews existing evaluations of experiences with white certificate obligations in Great Britain, Italy and France. Ex ante microeconomic analysis find that the obligation is best modelled as a hybrid subsidy-tax instrument, whereby energy companies subsidize energy efficiency and pass-through the subsidy cost onto energy prices. Ex post static efficiency assessments find largely positive benefit-cost balances, with national differences reflecting heterogeneity in technical potentials. Compliance involved little trading between obligated parties. Whether the cost borne by obligated parties was recovered through increased energy revenue could not be ascertained. Ex post dynamic efficiency assessments find that in addition to addressing liquidity constraints through subsidies, white certificate obligations seem to have addressed informational and organisational market failures. Confidence in these conclusions is limited by the fact that no econometric analysis was performed. Yet the lack of publicly available data, a counterpart to the rationale of the instrument of harnessing private financing, makes any empirical evaluation of white certificate obligations challenging.

From Boom to Bust? A Critical Look at US Shale Gas Projections

Philipp M. Richter

DOI: http://dx.doi.org/10.5547/2160-5890.4.1.pric
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U.S. shale gas production is generally expected to continue its fast rise of the last years. However, a cautious evaluation is needed. Shale gas resources are potentially overestimated and it is uncertain to what extent they can be economically produced. The adverse environmental effects of ever more wells being drilled may lead to a fall in public acceptance and the strengthening of U.S. regulation. The objective of this paper is twofold: first, to provide a critical look at current U.S. shale gas projections and, in a second step, investigate the implications of a less optimistic development by means of numerical simulation. In a world of declining U.S. shale gas production after 2015, natural gas consumption outside the U.S.A. is reduced from its reference path by at least as much as U.S. consumption. Trade flows are redirected, and the recent U.S. debate on allowing exports of Liquefied Natural Gas is moot.

The Dynamics of Energy Poverty: Evidence from Spain

Euan Phimister, Esperanza Vera-Toscano and Deborah Roberts

DOI: http://dx.doi.org/10.5547/2160-5890.4.1.ephi
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Reducing the proportion of households defined as energy poor is an increasingly important policy objective. This paper uses longitudinal data to examine the level and dynamics of energy poverty in Spain, comparing the results to the level and dynamics of income poverty. Two alternative measures of energy poverty are used in the analysis - one based on energy expenditure, the other reflecting an individual's perceptions of difficulty in heating their home, paying utility bills and housing condition. The proportion of those in income poverty and also in energy poverty is relatively low suggesting a need for specific as opposed to general measures to address the latter. In relation to the dynamics of energy poverty, at the aggregate level there is a substantially greater movement out of expenditure-based energy poverty relative to subjective energy poverty and income poverty while the rate of re-entry into poverty was highest for the subjective energy poverty measure. The analysis also provides evidence of duration dependence in energy poverty. The results show clearly how mitigating expenditure behaviour reduces the level and alters the dynamics of expenditure-based energy poverty compared to subjective energy poverty. The implications for designing, targeting and monitoring energy policy are considered.

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