Experience curve for natural gas production by hydraulic fracturing

Rokuhei Fukui, Carl Greenfield, Katie Pogue and Bob van der Zwaan ()

Energy Policy, 2017, vol. 105, issue C, 263-268

Abstract: From 2007 to 2012 shale gas production in the US expanded at an astounding average growth rate of over 50%/yr, and thereby increased nearly tenfold over this short time period alone. Hydraulic fracturing technology, or “fracking”, as well as new directional drilling techniques, played key roles in this shale gas revolution, by allowing for extraction of natural gas from previously unviable shale resources. Although hydraulic fracturing technology had been around for decades, it only recently became commercially attractive for large-scale implementation. As the production of shale gas rapidly increased in the US over the past decade, the wellhead price of natural gas dropped substantially. In this paper we express the relationship between wellhead price and cumulative natural gas output in terms of an experience curve, and obtain a learning rate of 13% for the industry using hydraulic fracturing technology. This learning rate represents a measure for the know-how and skills accumulated thus far by the US shale gas industry. The use of experience curves for renewable energy options such as solar and wind power has allowed analysts, practitioners, and policy makers to assess potential price reductions, and underlying cost decreases, for these technologies in the future. The reasons for price reductions of hydraulic fracturing are fundamentally different from those behind renewable energy technologies – hence they cannot be directly compared – and hydraulic fracturing may soon reach, or maybe has already attained, a lower bound for further price reductions, for instance as a result of its water requirements or environmental footprint. Yet, understanding learning-by-doing phenomena as expressed by an industry-wide experience curve for shale gas production can be useful for strategic planning in the gas sector, as well as assist environmental policy design, and serve more broadly as input for projections of energy system developments.

Keywords: Natural gas; Fracking; Price reductions; Learning-by-doing; Environmental impacts (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:105:y:2017:i:c:p:263-268

DOI: 10.1016/j.enpol.2017.02.027

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