Giberson: “Did the Federal Government Invent the Shale Gas Boom?” (December 20 post becomes part of a national debate)

One of the nation’s important energy analysts is Michael Giberson, an economist at the Center for Energy Commerce in the Rawls College of Business at Texas Tech University. Giberson, who has occasionally posted at MasterResource,  teaches energy courses at Tech such as U.S. Energy Policy and Regulation and Energy Economics.

Giberson is also a principal (with fellow energy expert Lynn Kiesling of Northwestern University) of the energy-centric Knowledge Problem, described as “Commentary on Economics, Information, and Human Action.”

A month ago, Giberson critically reviewed a study by the Breakthrough Institutethat claimed, basically, that government energy activism crucially enabled the shale gas (and oil) revolution that is now sweeping much of the United States and many countries around the world.

“New Investigation Finds Decades of Government Funding Behind Shale Revolution,” announced Breakthrough on December 20, adding:

Breakthrough Institute research and interviews show the direct and sustained support federal agencies provided to the gas industry leading up to the modern natural gas revolution.

And virtually on the same day (Giberson was on holiday), a rebuttal came at Knowledge Problem (reprinted with separate comments at  Energy Collective) that is now part of the national debate.

On Tuesday night, the Breakthrough Institute trumpeted Obama’s mention under the headline “Obama’s Energy Revolution,” adding:

In his State of the Union, President Barack Obama referred to the findings of a Breakthrough Institute investigation, which found that 30 years of federal funding led to the shale gas revolution.

Given the high-stakes debate, MasterResource is pleased to repost, in its entirely, Giberson’s analysis–and his challenge for deeper research.  The debate is joined.

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In the Washington Post the folks at the Breakthrough Institute try to learn us some history about the shale gas boom. Maybe you think the shale gas boom was some big surprise suddenly made real after the decades-long work of a hard-headed oil and gas guy – George Mitchell – willing to spend millions of dollars on the crazy idea that hydrocarbons stuck in a rock could be produced economically, once the right mix of technologies could be brought to bear.

Wrong, says the Breakthrough Institute, credit the shale gas boom to the federal government.

They have their reasons:

• “Slick-water fracking, the technology that Mitchell used to crack the shale gas code, was adapted from massive hydraulic fracturing, a technology first demonstrated by the Energy Department in 1977.”
• “Mitchell learned of shale’s potential from the Eastern Gas Shales Project, a partnership begun in 1976 between the Energy Department’s Morgantown Energy Research Center and dozens of companies and universities ….”
• “Mitchell’s success depended on a revolution in monitoring and mapping technologies driven largely by government labs.”
• In 1991, Mitchell asked the publicly funded Gas Research Institute, then funded by a tax on gas production, and the Energy Department for help.”
• “Sandia National Labs provided Mitchell with many critical microseismic tools.”
• “Mitchell also benefited from 3-D imaging, which the Energy Department had long supported.”
• “The third critical technology was horizontal drilling and well installation …. In 1976, two government engineers … patented an early-stage directional drilling technology that became the precursor to horizontal drilling.”
• “A joint venture between the Energy Department and industry drilled the first horizontal Devonian shale well….

There are a few more similar points. The article pursues a larger goal – some statement concerning current energy policy support – but today I just want to consider how to assess the credit for technological advancement. (See tomorrow for part II.)

A fair analysis of credit and blame requires more than just a recounting of history, such as provided in the article, we need also to construct a counterfactual history for comparison. Should we reasonably believe that but-for the energy technology programs of the Department of Energy, we’d be unable to produce natural gas from shale? It would be difficult to do this analysis well, and the authors don’t attempt it here, but a full assessment calls for it.

A sketch of technology developments may be helpful. Note that fracturing as a well-stimulation technology started in Pennsylvania in the early 1860s. A few clever folk discovered dropping gunpowder down a well, later liquid nitroglycerin,  often brought marvelous returns. Edward A. L. Roberts submitted a patent application for the process in 1864. Hydraulic fracturing technology was first developed by Standard Oil (Indiana) in the late 1940s.  In the 1960s, Project Gasbuggy had the federal government collaborating with the oil and gas industry to test a nuclear-weapon based fracturing technology on federal land in New Mexico. The Breakthrough Institute’s story picks up in the 1970s, but what the backstory reveals is a history of efforts to develop fracturing technology, funded privately in some cases and publicly in others. Department of Energy involvement may have shaped the direction of research, but I suspect its pool of research funds was merely convenient to technological advancement and not necessary. (More recently, GasFrac Energy Services of Alberta has pioneered a propane-based fracturing technology.)

Directional drilling, a precursor to horizontal drilling, first became practiced in the industry in the 1920s – well before “two government engineers … patented an early-stage directional drilling technology” in 1976. (See “Slanted Oil Wells,” published in Popular Science magazine in 1931.) As with hydraulic fracturing,  the industry found the technology quite useful in application and companies pursued technological advancements. Taxpayer funding may have been convenient support for the oil and gas industry, government research involvement may have shaped the direction of directional-drilling research, but the industry would have pursued the technology in any case.

So possibly the federal government’s involvement advanced by a few years the technologies that were finally blended in a sufficiently promising mix by George Mitchell. Even if we grant as much, it isn’t the whole of the shale gas boom that federal involvement gains credit for, just the added value that comes from shifting shale gas production forward by a few years. Of course possibly the whole of the federal government’s involvement in the industry – tax policies, regulatory policies, antitrust policies, federal lands policy, and so on – could reasonably be counted as delaying technological advancement when compared against what would have happened under some more rational regime.

Admittedly, they were just writing an op-ed and I’m complaining that they didn’t do a dissertation’s worth of work to support it. Maybe my complaints are a little unfair.

Okay, here is an offer: I’ll admit my complaints are unfair if they admit that their analysis was insufficient to justify their conclusions.

Read more at Master Resource