The war in Iran has pushed up natural gas prices in most of the world. Liquefied natural gas (LNG) prices nearly doubled in the first half of March, and attacks on LNG infrastructure in Qatar and elsewhere squeezed prices even further. 

US natural gas prices, meanwhile, have barely budged. US LNG export facilities were already running at near 100% capacity factor, so there is little scope in the short run to increase exports. Consequently, US natural gas prices have remained at about $3 per thousand cubic feet (Mcf), about 1/6th of the price in Europe and Japan.

This is not the first time this has happened. Market data show that US natural gas prices have been consistently well below natural gas prices elsewhere in the world for the last 20 years. Why? Shale gas.

In a recent paper (Davis 2026), I calculate how much shale gas has saved US consumers since 2007. The paper was heavily influenced by an insightful paper published in 2015 by Catherine Hausman and Ryan Kellogg on the economic benefit of shale gas (Hausman and Kellogg 2015), but takes a different approach focused on price differences. 

Shale gas revolution

It may seem like a distant memory now, but back in the mid 2000s, US natural gas production had been flat for a decade, and the US was importing LNG – not exporting it – and with plans to import much more. As of February 2007, there were four additional US LNG import terminals under construction, and another ten US LNG import terminals had received approval from the Federal Energy Regulatory Commission (FERC). 

Then shale gas happened. Advances in hydraulic fracturing and horizontal drilling opened vast new areas to development and super-sized US natural gas production. Since Daniel Yergin and Robert Ineson wrote about “America’s Natural Gas Revolution” in the Wall Street Journal in 2009 (Yergin and Ineson 2009), US natural gas production has approximately doubled, driven overwhelmingly by shale gas (Figure 1).

Figure 1 US natural gas production before and after

Along the way, the US went from being a net importer of natural gas to the world’s largest exporter, with 9 billion Mcf of exports last year. 

Price divergence

Shale gas has dramatically reduced US natural gas prices relative to what they would have been without this innovation. Figure 2 plots natural gas prices for the US, Europe, and Japan.

Figure 2 Natural gas prices in the US, Europe, and Japan

Notes: This figure plots 12-month rolling averages based on monthly data from the World Bank, Commodity Markets Outlook, Historical Data, “Pink Sheet”. The three price benchmarks are (1) U.S. natural gas prices at Henry Hub, (2) European natural gas prices at Netherlands Title Transfer Facility, and (3) LNG import prices in Japan. Prices have been normalized to reflect 2025 dollars.

Before shale gas, prices followed each other reasonably closely. Between 1995 and 2006, prices for Europe and Japan were both within $1 per Mcf of the US price, on average. 

Then prices diverged sharply. Every single month between 2007 and 2025, the US price was below or equal to the price in Europe and Japan (Table 1). Relative to Europe, US prices have been $9 lower per Mcf on average. Relative to Japan, US prices have been $11 lower.

Table 1 Natural gas prices in the US, Europe, and Japan

Shale gas is the single best explanation for the persistent price differences since 2007. The timing of the divergence closely corresponds with the growth of shale gas, with price differences appearing right at the inflection point for US oil production. The prices also reflect other demand and supply shocks. For example, the large spike in European natural gas prices in 2022 reflects the Russian invasion of Ukraine.

Why don’t these prices equalise?

Prices do not equalise across continents due to transportation constraints. Natural gas takes up a lot of space, so must be transported by pipeline or cooled to -162°C to liquefy it for ship transport. Several US LNG export facilities came online starting in 2016, but that was not enough to equate natural gas prices between the US and the rest of the world, despite operating continuously at near 100% utilisation.

More US LNG export facilities are coming. US exporters have announced 13.9 billion cubic feet per day of additional capacity that would be added by 2029, nearly doubling US LNG export capacity. Increased US LNG exports will put downward pressure on prices in Europe and Japan, and upward pressure on US prices.

Large savings

In the meantime, US natural gas consumers have benefited mightily from cheap US shale gas. Table 2 reports savings based on demand elasticities of -0.25 and -0.50. Based on these calculations, shale gas has saved US natural gas consumers between $3.1 trillion and $4.3 trillion since 2007, equivalent to $164-$227 billion annually. 

Table 2 Savings for US consumers, 2007-2025

The underlying assumption in these calculations is that without shale gas, the US would have been importing LNG and thus paying the prices observed in Europe or Japan, respectively. This does not require any specific assumption about the counterfactual path for US gas production, but it does assume sufficient scarcity of natural gas that the marginal unit would have been supplied by LNG in all years.

This is a strong assumption. US LNG imports were growing prior to shale gas but still a tiny share of the market. It is certainly possible that, without shale gas, weak US supply and strong US demand would have led to sharply increasing US LNG imports. But the opposite is also possible. Conventional US natural gas production could have increased, or US demand could have decreased, making LNG imports unnecessary, in which case the estimates from previous papers (Hausman and Kellogg 2015, Mason et al. 2015) are more appropriate.

Who benefited?

I find that 39% of savings went to electric power customers, with the other 61% going to end-use gas consumption by industrial, residential, and commercial customers. In terms of geography, Texas has saved more than any other state and Louisiana has saved the most per capita.

Figure 3 Annual savings per capita

Conclusion

Shale gas was initially hailed as a “revolution”, yet by 2026, we almost take for granted the vast amounts of natural gas production made possible by advances in hydraulic fracturing and related technologies. As with many innovations, nobody was talking about it, then everyone was talking about it, and then it became commonplace.

These savings have been widely enjoyed. If you heat your home with natural gas and use a lot of electricity, plastic and fertilizer then you have benefited more than average. However, because natural gas is an important input into so many production processes, it is not an exaggeration to say that every single person in the US has enjoyed lower prices because of shale gas.

In future research, it would be valuable to compare these savings with environmental costs and benefits. A comprehensive analysis of shale gas would incorporate the direct effects of increased US natural gas production including groundwater contamination (Hill and Ma 2022) and methane leaks (Sherwin et al. 2024), indirect effects from natural gas displacing other forms of energy (Knittel et al. 2016, Cullen and Mansur 2017, Fell and Kaffine 2018), as well as longer-run impacts on clean energy innovation (Acemoglu et al. 2023, Dugoua and Gerarden 2025). Recent papers look at the environmental effect of increased US LNG exports (Abuin 2025, Prest 2025), but more research is needed.

References

Abuin, C (2025), “Power Decarbonization in a Global Energy Market: The Climate Effect of U.S. LNG Exports”, Working Paper.

Acemoglu, D, P Aghion, L Barrage, and D Hémous (2023), “Climate Change, Directed Innovation, and Energy Transition: The Long-Run Consequences of the Shale Gas Revolution,” NBER Working Paper.

Cullen, J A and E T Mansur (2017), “Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach Using the Shale Revolution,” American Economic Journal: Economic Policy 9(3): 106–133.

Davis, L (2026), “How Much Has Shale Gas Saved U.S. Consumers?”, NBER Working Paper.

Dugoua, E and T D Gerarden (2025), “Induced Innovation, Inventors, and the Energy Transition,” American Economic Review: Insights 7(1): 90–106.

Fell, H and D T Kaffine (2018), “The Fall of Coal: Joint Impacts of Fuel Prices and Renewables on Generation and Emissions,” American Economic Journal: Economic Policy 10(2): 90–116.

Hausman, C and R Kellogg (2015), “Welfare and Distributional Implications of Shale Gas,” Brookings Papers on Economic Activity, Spring, 71–125.

Hill, E L and L Ma (2022), “Drinking Water, Fracking, and Infant Health,” Journal of Health Economics 82, 102595.

Knittel, C, K Metaxoglou, and A Trindade (2016), “Are We Fracked? The Impact of Falling Gas Prices and the Implications for Coal-to-Gas Switching and Carbon Emissions,” Oxford Review of Economic Policy 32(2): 241–259.

Mason, C F, L A Muehlenbachs, and S M Olmstead (2015), “The Economics of Shale Gas Development,” Annual Review of Resource Economics 7(1): 269–289.

Prest, B C (2025), “Where Does the Marginal Methane Molecule Come From? Implications of LNG Exports for US Natural Gas Supply and Methane Emissions”, Working Paper.

Sherwin, E D, J S Rutherford, Z Zhang et al. (2024), “U.S. Oil and Gas System Emissions From Nearly One Million Aerial Site Measurements,” Nature 627(8003): 328–334.

Yergin, D and R Ineson (2009). “America’s Natural Gas Revolution,” Wall Street Journal, 2 November.