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Sustainability 2018, 10(3), 697; doi:10.3390/su10030697

The US Shale Gas Revolution and Its Externality on Crude Oil Prices: A Counterfactual Analysis

School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710061, Shaanxi, China
Author to whom correspondence should be addressed.
Received: 16 January 2018 / Revised: 24 February 2018 / Accepted: 26 February 2018 / Published: 5 March 2018
(This article belongs to the Section Energy Sustainability)
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The expansion of shale gas production since the mid-2000s which is commonly referred to as “shale gas revolution” has had large impacts on global energy outlook. The impact is particularly substantial when it comes to the oil market because natural gas and oil are substitutes in consumption and complements and rivals in production. This paper investigates the price externality of shale gas revolution on crude oil. Applying a structural vector autoregressive model (VAR) model, the effect of natural gas production on real oil price is identified in particular, and then based on the identification, counterfactuals of oil price without shale gas revolution are constructed. We find that after the expansion of shale gas production, the real West Texas Intermediate (WTI) oil price is depressed by 10.22 USD/barrel on average from 2007 to 2017, and the magnitude seems to increase with time. In addition, the period before shale gas revolution is used as a “thought experiment” for placebo study. The results support the hypothesis that real WTI oil price can be reasonably reproduced by our models, and the estimated gap for oil price during 2007–2017 can be attributed to shale gas revolution. The methodology and framework can be applied to evaluate the economic impacts of other programs or policies. View Full-Text
Keywords: shale gas; oil price; structural VAR; counterfactual analysis; placebo study shale gas; oil price; structural VAR; counterfactual analysis; placebo study

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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Liu, H.; Li, J. The US Shale Gas Revolution and Its Externality on Crude Oil Prices: A Counterfactual Analysis. Sustainability 2018, 10, 697.

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