The Rise of Shale Gas: Implications of the shale gas boom for natural gas markets, environmental protection and U.S. energy policy
Lovejoy, Cassandra L.
Hunger, David E.
Through the processes of hydraulic fracturing and horizontal drilling, once overlooked deposits of natural gas in shale formations have become economically viable to extract. In the past decade, energy companies have rushed to produce this newly available resource. Energy economists believe that this influx of shale gas will lead to lower, more stable natural gas prices, reduce our country's dependence on foreign oil and reduce the use of coal for electricity generation. However, environmental advocates are concerned that shale gas production comes at too high an environmental price through groundwater contamination and methane emissions. This paper analyzed the relationship between shale gas production and natural gas prices through a fixed effects regression model. Results of the model indicated that state-level variations in natural gas supply were not sufficient to affect prices set at the national level. In terms of policy implications, the United States must be deliberate in deciding the role of shale gas in U.S. energy policy. Full-blown investment in shale resources should be delayed until the environmental impacts of hydraulic fracturing are more fully understood and appropriate precautions are put in place. In addition, if natural gas is to be used as a "bridge fuel," care must be taken to ensure the expansion of natural gas does not undermine investments in alternative energy sources.
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