Discussion Paper

The Disconnect between Productivity and Profits in U.S. Oil and Gas Extraction

Abstract: U.S. oil and gas production boomed during the years leading up to the pandemic. From 2011 to 2019, oil production more than doubled and dry natural gas production rose by more than half. Remarkably, these gains occurred despite lackluster investment spending and hiring. Instead, higher production came largely from productivity gains, via wider adoption of fracking technologies. More recently, production recovered sluggishly from the pandemic downturn despite a quick recovery in prices. Our analysis in this post suggests that slower productivity growth and investors’ demand for higher returns have made U.S. firms willing to boost output only at a higher threshold oil price.

Keywords: oil; natural gas extraction; productivity; profits; multifactor productivity (MFP); United States; fracking; inflation;

JEL Classification: E2; E31;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2022-08-17

Number: 20220817