Bureaucrats didn't create the gas boom

Posted: February 07, 2012

By Nicolas Loris

President Obama has been on a kick to promote natural-gas production. Unfortunately, he seems to think the key to doing this is more government involvement.

"It was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock," he said in his State of the Union address last month, "reminding us that government support is critical in helping businesses get new energy ideas off the ground."

There are two big problems with this statement. First, it makes it sound as if the government invented the technology, commercialized it, and handed it over to private companies. Second, it assumes that if the government hadn't invested in natural-gas technologies, we wouldn't be where we are today in terms of gas production. Both are far from the truth.

Well before the government invested in natural-gas technologies, the private sector established and developed hydraulic fracturing, or "fracking," a process that injects fluid (mostly water) and sand into wells to free oil and gas trapped in rock formations. The technology's roots go as far back as the 1860s. In the 1940s, Stanolind Oil and Gas Corp. began studying and testing the method. In 1949, a patent was issued and Halliburton was granted a license to use the technology.

Government involvement came years later. The U.S. Department of Energy partly funded data accumulation, microseismic mapping, the first horizontal well, and tax credits for unconventional gas extraction. But who was in the driver's seat? George Mitchell, who invested millions of his own money in research and development for fracking and horizontal drilling.

The geologist for Mitchell's company, Jim Henry, first identified Texas' Barnett Shale as a possible resource. Mitchell spent between $7 million and $8 million of his own money trying to extract shale gas and eventually made it economically viable. He is behind the shale gas revolution - not the government.

"Dan Steward, a former geologist and vice president with Mitchell Energy ... said industry eventually would have figured out how to make shale gas profitable," the Houston Chronicle reported. The paper went on to quote Steward as saying, "But George Mitchell is responsible for making it happen right now, when we need it."

Saying we would not have today's natural-gas production without government spending is like saying you would starve without the grocery store down the street from your house. You would find another way to get food, and the same goes for shale-gas production. It's economical because private companies have found a way to make it work. Government involvement merely supplants industry dollars with taxpayer dollars.

It's not a matter of congratulating government on dollars well spent if it finds a commercial success - or of blasting it for wasting taxpayer dollars when a government-supported industry files for bankruptcy (although that does show the government's poor record of picking winners and losers). The point is that good economic ideas will find their way to the market, while bad ones will fall by the wayside.

Either way, using taxpayer dollars does not make sense. If venture capitalists and businesses are overlooking investment opportunities in certain energy technologies, they are overlooking them for a reason.

The United States enjoys robust domestic energy resources (nuclear, natural gas, oil, coal, hydroelectric, wind, and solar). The energy market can be diverse and competitive without government interference. The opportunity to profit from the domestic and global demand for electricity and transportation fuels is sufficient incentive for the market to invest in these technologies.

There is no evidence that the Department of Energy is equipped to make investment decisions or to commercialize technologies when the private sector chooses not to. And there is no evidence that the government has been behind successful efforts to commercialize an energy technology.

Despite what the president says, new energy technologies are not driven by the government, and its attempts to do so are wasteful.


Nicolas Loris is an energy and environmental policy analyst at the Heritage Foundation.

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