Thursday, August 30, 2012

The Government Role in the Shale Gas Revolution

A recent blog post by the American Enterprise Institute’s (AEI) Mark Perry insists on solely crediting “market forces” for the shale gas revolution. Perry continues to push a false narrative that the market alone developed and deployed the technologies used today to extract shale natural gas, which has resulted in dirt-cheap prices and natural gas industry growth – natural gas is now tied with coal as America’s top source of electricity. It follows a similar piece earlier this year by AEI’s Steven Hayward that characterized the shale gas revolution as occurring “away from the greedy grasp of Washington,” thus completely overlooking any government role whatsoever. “If the political class had known this was going on,” he declares, “surely Washington would have done something to slow it up, tax it more, or stop it altogether.” In reality, the government deserves ample credit for not only developing the next generation natural gas technologies used today but also for partnering with industry to accelerate deployment of those technologies to market.
Oakland-based think-tank the Breakthrough Institute conducted an investigation that sheds light on the extent to which the government helped foster technology innovation in the natural gas sector (and an ITIF blog post summarizes here):
From the 1970’s through the 1990’s, the federal government partnered with the gas industry to develop horizontal drilling installations, hydraulic fracturing, and the mapping technologies that make shale gas even possible. These technologies got their start in at the Morgantown Energy Research Center, which provided investments for RD&D into new natural gas drilling technologies.  From that center and subsequent government funded demonstration projects came directional drilling.  Ultimately, a private company – Mitchell Energy – commercialized the technology.  But government energy innovation policy didn’t stop there. Mitchell Energy and the Department of Energy (DOE) continued partnering, as DOE (through the Federal Labs and the Gas Research Institute) provided vital mapping R&D to understand and exploit shale gas formations. Targeted ‘non-conventional’ gas tax credits sustained development of these technologies when no market existed and a gas rate-payer surcharge was used to fund early research.
In other words, the shale natural gas revolution is an inconvenient reality for those that want to push the Solyndra-narrative that government can do no right in addressing U.S. energy challenges. In fact, as the last century of breakthrough technology development has shown (including the shale natural gas revolution) government can and has done right. So instead of pushing a false narrative, the energy policy debate would be much better served by teasing out the research, development, deployment, and public-private partnership models that worked (like the Breakthrough Institute did in their study) and didn’t work to make better government investments in breakthrough technologies and energy policies.

By Clifton

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