WORKING PAPERS

• Covert, Thomas R. and Ryan Kellogg, Environmental Consequences of Hydrocarbon Infrastructure Policy, NBER working paper #23855 (revised 2023), conditionally accepted at the Journal of Political Economy.
  - Working paper (September, 2023), Original NBER working paper #23855 (2017)

  [abstract]

  We study policies that aim to 'keep carbon in the ground' by blocking fossil fuel infrastructure investment. Our analysis relies on a model of hydrocarbon production and transportation, incorporating substitution between pipeline infrastructure and flexible alternatives, like crude-by-rail. We apply the model to the Dakota Access Pipeline (DAPL), which moves oil from North Dakota to Texas and was controversially completed in 2017. Had DAPL's construction been enjoined, we estimate that 81% of the blocked pipeline flows would move by rail instead. This substitution induces both private costs and local environmental damage, since rail transport imposes greater local externalities than pipelines.

• Kellogg, Ryan, The End of Oil, NBER working paper #33207, revise-and-resubmit at the Review of Economic Studies.
  - Working paper (November, 2024)

  [abstract]

  It is now plausible to envision scenarios in which global demand for crude oil falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, adoption of stringent climate policies, or both. This paper asks what such a demand decline, when anticipated, might mean for global oil supply. One possibility is the well-known ``green paradox'': because oil is an exhaustible resource, producers may accelerate near-term extraction in order to beat the demand decline. This reaction would increase near-term CO2 emissions and could possibly even lead the total present value of climate damages to be greater than if demand had not declined at all. However, because oil extraction requires potentially long-lived investments in wells and other infrastructure, the opposite may occur: an anticipated demand decline reduces producers' investment rates, decreasing near-term oil production and CO2 emissions. To evaluate whether this disinvestment effect outweighs the green paradox, or vice-versa, I develop a tractable model of global oil supply that incorporates both effects, while also capturing industry features such as heterogeneous producers, exercise of market power by low-cost OPEC producers, and marginal drilling costs that increase with the rate of drilling. I find that for model inputs with the strongest empirical support, the disinvestment effect outweighs the traditional green paradox. In order for anticipation effects on net to substantially increase cumulative global oil extraction, I find that industry investments must have short time horizons, and that producers must have discount rates that are comparable to U.S. treasury bill rates.

• Covert, Thomas R., Konan Hara, Ryan Kellogg, and Richard L. Sweeney, "Investment, Productivity, and Selection in the U.S. Shale Boom", Work in progress, preliminary draft available upon request

  [abstract]

  The U.S. shale oil and gas boom has driven an unprecedented increase in U.S. oil and gas production. The primary driver of this ongoing boom has been a large increase in production per new well, rather than increases in the rate of drilling new wells. The goal of this paper is to understand why output per well has increased so dramatically. A core question is the extent to which production growth arose from changes in well site selection---i.e., changes in the underlying geological quality of the precise areas being drilled---or from changes in firms' operational decisions, such as changes in inputs and adoption of new technologies. We develop a joint model of well-level production and drilling decisions that allows us to address site selection that comes from firms' private ex ante signals of sites' underlying geologic quality and from firms' ability to learn about quality over time by observing drilled wells' production outcomes. The model is designed to account for not just whether but when sites are drilled. We estimate the model using data on drilling, production, and leasing from two major U.S. shale plays: the Bakken in North Dakota and the Haynesville in Louisiana. We find that site selection has been important: firms initially drilled areas for which they had initial signals of high quality, and then they later repeatedly drilled in areas that had positive production outcomes. The effects of this site selection were swamped, however, by large increases in output that are associated with increases in input use, driven by either adoption of complementary technology or firms' learning about how to use inputs and existing technology more effectively. The production improvements occur within firms, rather than being driven by reallocation of drilling activity to more productive firms.