Industry evolution : applications to the U.S. shale gas industry

The present study applies evolutionary and resource-based firm theories to three of the most prominent U.S. shale gas basins – the Barnett, Fayetteville, and Haynesville plays. Rather than broadly considering a host of factors that enabled what has often been labelled a shale gas revolution, an evolutionary approach recognizes the internal agents that have long been in place, but were triggered by technical and economic developments. As geologic understanding, along with innovation and competitive environments, evolves in each play so too does the entire shale gas industry. Building upon the Bureau of Economic Geology shale gas study funded by the Sloan Foundation, this study offers data-driven analyses to test theories of industrial evolution as applied to shale gas plays. Each of the three focus plays has undergone introductory and growth phases as well as a maturation phase in which there is an evident shakeout of operators. Industries are theorized to enter decline phases, yet none of the plays here have definitively declined. Certain economic signals, however, indicate that a decline is imminent, albeit variable in timing and pace. Conceptualizing the entire shale gas industry as an amalgamation of individual and evolving plays correctly describes how the industry is able to rejuvenate its growth trajectory through investment in emerging plays. Although heterogeneous geology, engineering capabilities, and economic environment, particularly natural gas prices, complicate the economics of shale gas extraction, an evolutionary approach proves to be a useful tool in describing the historical development of individual plays as well as the entire shale industry. Importantly, this application sheds light on the future development of valuable shale resources.