How subsidies aided the US shale oil and gas boom

The report analyzes the impact of three US federal tax subsidies—the expensing of intangible drilling costs (IDC), percentage depletion, and accelerated amortization of geological and geophysical (G&G) expenses—on the profitability of oil and gas projects from 1998 to 2019. Using a financial model of 2,450 fields, the authors find that these subsidies increased the expected net present value of projects by billions of dollars annually, often exceeding $20 billion in high-price years. The benefits were heavily concentrated in unconventional shale developments in regions such as the Permian Basin and Appalachia, and disproportionately benefited independent firms over integrated ones. While subsidies provided 'super normal' profits during high-price periods (2007-2014) without significantly altering drilling decisions, they were critical for the viability of marginal projects during price drops, such as in 2016 for oil and 2010-2012 for gas in Appalachia.

• Three federal tax incentives—the expensing of intangible drilling costs (IDC), percentage depletion, and accelerated amortization of geological and geophysical (G&G) expenses—significantly increased the expected value of new US oil and gas projects, with total values exceeding $20 billion in some high-price years.
• The subsidies provided a median increase in expected value of $4 per barrel of oil equivalent or more for projects during high-price years, specifically 2008 and 2010-2014.
• The financial benefits of these subsidies were primarily concentrated in unconventional shale developments across several key US regions, including the Bakken formation (2005-2006), Appalachia and Haynesville (2008), Eagle Ford (2009-2010), and the Permian Basin (2011-2015).
• Unconventional projects benefited more from subsidies on a levelized basis than conventional projects; in 2006 and 2007, the median benefit for unconventional fields was approximately $5 per barrel of oil equivalent, compared to $2 per barrel for conventional fields.
• The IDC subsidy was the largest of the three in most years because it allows firms to accelerate tax deductions, which is highly valuable to firms with higher discount rates (10%) compared to the US government's lower discount rate.
• Subsidies had a varying impact on investment decisions based on market prices: they provided 'super normal' profits during high-price years (2007-2014) with little effect on the decision to drill, but were essential for viability during price lows, such as in 2016 when they pushed over 30% of new oil projects into profitability.
• Certain independent firms received disproportionately high benefits; for example, in 2008, subsidies increased Chesapeake Energy Corporation's expected project returns by approximately $9 billion, and in 2012, they increased Pioneer Natural Resources' returns by $8 billion.

APA

Erickson, P., & Achakulwisut, P. (2021). How subsidies aided the US shale oil and gas boom. Stockholm Environment Institute. https://www.sei.org/wp-content/uploads/2021/06/how-subsidies-aided-the-us-shale-oil-and-gas-boom.pdf

Chicago

Erickson, Peter, and Ploy Achakulwisut. How subsidies aided the US shale oil and gas boom. Stockholm Environment Institute, 2021. https://www.sei.org/wp-content/uploads/2021/06/how-subsidies-aided-the-us-shale-oil-and-gas-boom.pdf.

Wikipedia

{{cite report |last1=Erickson |first1=Peter |last2=Achakulwisut |first2=Ploy |title=How subsidies aided the US shale oil and gas boom |publisher=Stockholm Environment Institute |date=June 2021 |url=https://www.sei.org/wp-content/uploads/2021/06/how-subsidies-aided-the-us-shale-oil-and-gas-boom.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{erickson2021how, author = {Erickson, Peter and Achakulwisut, Ploy}, title = {{How subsidies aided the US shale oil and gas boom}}, institution = {Stockholm Environment Institute}, year = {2021}, month = jun, url = {https://www.sei.org/wp-content/uploads/2021/06/how-subsidies-aided-the-us-shale-oil-and-gas-boom.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }