Understanding productivity effects of hydraulic fracturing in unconventional natural gas deposits and implications for adoption in the developing world

Abstract

Hydraulic 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.

A room with a view: a special issue with a special perspective

“…The paper by Fitzgerald and Mason (2021), entitled 'Understanding productivity effects of hydraulic fracturing in unconventional natural gas deposits and implications for adoption in the developing world' complements the conceptual analysis developed by Convery (2021) by discussing a specific (and much debated) technological innovation: hydraulic fracturing (HF). So far, the latter has not been used much in developing countries, although they hold most current proven reserves of unconventional resources.…”

“…To this aim, Fitzgerald and Mason (2021) estimate the marginal productivity of HF using a large dataset that combines information on injectants used, toxicity of ingredients and production levels collected from wells in Wyoming. The experience in this state seems particularly important since it was the first one to require reporting of chemical injectants being used in the HF process, while allowing firms to withhold information when 'trade secrets' are involved.…”

“…The experience in this state seems particularly important since it was the first one to require reporting of chemical injectants being used in the HF process, while allowing firms to withhold information when 'trade secrets' are involved. The analysis of Fitzgerald and Mason (2021) provides interesting insights on the evolution of firms' disclosure of ingredients and the trade-off between intellectual property rights and environmental protection, which can usefully inform decisions and future discussions on potential substitution between injectants that contaminate groundwater and more benign ones. I expect that their results will attract the readers' attention and will spur further debate on this controversial topic in the future.…”