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Is the US the New Swing Producer? The Price-Responsiveness of Tight Oil

Is the US the New Swing Producer? The Price-Responsiveness of Tight Oil

Full Title: Is the US the New Swing Producer? The Price-Responsiveness of Tight Oil
Author(s): Richard G. Newell & Brian C. Prest
Publisher(s): Resources For the Future
Publication Date: June 1, 2017
Full Text: Download Resource
Description (excerpt):

We analyze the price responsiveness of onshore oil supply from conventional versus
new unconventional “tight” formations in the United States. We separately analyze
three key stages of oil production: drilling wells, completing wells, and production from
completed wells. We find that the important margin is drilling i nvestment. We estimate
drilling responses of approximately 1.3 percent for tight oil and 1.1 percent for conventional
oil per 1 percent change in oil prices. In addition, tight oil wells produce about
4.6 times more oil compared to conventional ones. Together, the long-run price responsiveness
of supply is about 5 times larger for tight oil on a per well basis, and about 9
times larger when accounting for the rise in the number of unconventional wells drilled.
Based on these estimates, simulations of the time-profile of oil production response to
price changes show that the US supply response is much larger now due to the shale
revolution. Nonetheless, it takes many months before a substantial portion of the full
supply response is online, longer than the 30 to 90 days typically associated with the
role of “swing producer” such as Saudi Arabia.

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