Thank Washington for Shale Gas and Oil

George Mitchell died last week. The obituaries rightly lauded him as the father of the shale gas and oil revolution. Yet, in their eagerness to apotheosize Mitchell, the editors of our leading media left out the mother of this revolution – the federal government.

I don’t want to take anything away from Mitchell. He was a great investor, philanthropist, and entrepreneur who doggedly pursued the idea that shale could be made to yield its vast oil and gas content. But contrary to the classic picture of the lone wolf inventor who persists alone in the face of indifference, ridicule, disappointment, and even contempt, Mitchell had a partner — the American taxpayer and the federal government.

This image of Washington as a partner is not easily accepted by most Americans who prefer to the federal government as at best a pest and often a downright enemy. But the truth is that virtually none of America’s great inventors and entrepreneurs did it on their own. In the overwhelming majority of cases, they received taxpayer supported federal help along the way.

For example, sometimes I ask audiences if any of them know who invented the Internet. The responses always include such as Bill Gates, Steve Jobs, Larry Ellison, Intel, and IBM. No one ever mentions the Defense Advanced Research Projects Agency (DARPA) which was the real inventor and developer of the basic Internet technology. Nor does anyone ever mention the National Science Foundation’s long years of nurturing the Internet before it became commercially viable. Nor does anyone ever mention the role played by major U.S. universities who used federal funds to establish the first Internet centers and hubs. But the hard truth is that the U.S. government was the inventor and developer of the Internet.

The story is similar in the case of shale gas and oil. As Alex Trembath, Michael Schellenberger, and Ted Nordhaus of the Breakthrough Institute have noted, the U.S. government spent billions over three decades to make shale gas and oil a reality. The effort began in the 1970s as a somewhat quixotic, patriotic undertaking by the government’s energy agencies and then the Department of Energy to respond to the oil crises of the time and to prevent the United States from becoming dependent on imported energy. Long known as lacking in innovation, the private companies of the energy industry showed little or no interest when the feds showed up offering them funds for joint research and development. Mostly, the oil and gas companies turned it down and told the feds to get lost. Mitchell’s great virtue was that he took the money. Here are just a few of examples of the federal largess that supported and drove Mitchell’s work.

• The Eastern Gas Shales Project, a series of public-private shale drilling demonstration projects in the early 1970s in response to the energy crisis;
• Collaboration  with the Gas Research Institute (GRI), an industry research consortia that received partial funding and R&D oversight from the Federal Energy Regulatory Commission;
• Early shale fracturing and directional drilling technologies developed by the Energy Research and Development Administration (ERDA, later the Department of Energy), the Bureau of Mines, and the Morgantown Energy Research Center (later the National Energy Technology Laboratory);
• The Section 29 tax credit for unconventional gas production, in effect from 1980-2002;
• Public subsidization and cost-sharing for demonstration projects, including the first successful multi-fracture horizontal drilling play 1986 and Mitchell Energy’s first horizontal well in 1991;
• Three-dimensional microseismic imaging, a geologic mapping technology developed by Sandia National Laboratories.

The Irony is that Mitchell spent much of his time lobbying the congress to keep these programs alive with sufficient funding.

So as we remember Mitchell as one our great innovators and entrepreneurs, let’s also pause for a moment to thank our great bureaucrats as well.