New Investigation Finds Decades of Government Funding Behind Shale Revolution

The technological revolution allowing for the cheap extraction of natural gas from shale occurred thanks to more than three decades of government subsidies for research, demonstration, and production, a new Breakthrough Institute investigation finds.

Both directly and indirectly, the government was behind the critical moments and tools in the shale gas revolution - massive hydraulic fracking (MHF), 3-D mapping, horizontal drilling, and horizontal wells.

"I'm conservative as hell," Dan Steward, the former Mitchell Energy geologist whose company pioneered shale gas in Texas, told us. But when asked about the role of government, Steward told us, "They did a hell of a lot of work, and I can't give them enough credit for that. [The Department of Energy] started it, and other people took the ball and ran with it. You cannot diminish DOE's involvement."

Steward said the government directly or indirectly supported Mitchell energy every step of the way. "[The government] helped us to evaluate how much gas was there and evaluate its critical properties," he explained. "They helped us with our first horizontal well. They helped us with pressure build-ups. And we worked with them on crack mapping."

For more expert analysis on the development of shale gas extraction technologies, see our interview with Penn State's Terry Engelder.

While Jimmy Carter is often pointed to as the President who initiated the energy push in response to the oil crises of the early seventies, it was Republican President Gerald Ford who began a concerted federal effort to seek "unconventional" natural gas in response to shortages. "The DOE's [1976] Eastern Gas Shales Project [in the Appalachia basin] determined there was a hell of a lot of gas in shales," explained Steward. "Mitchell was interested in Barnett [shale] and his geophysicist said, 'It looks similar to the Devonian [shale], and the government's already done all this work on the Devonian.'"

"Mitchell raided the EGSP [Eastern Gas Shales Project] folks for help," Penn State geologist Terry Engelder told us, "and EGSP support came from that 10-fold ramp up of DOE" in the mid-seventies.

Engelder, who was just named one of the Top Global 100 Thinkers 2011 by Foreign Policy, conducted government-funded research in the late seventies documenting the behavior of underground fracturing -- research that was then picked up by Shell, which worked with Engelder to successful tap the Antrim shale in Michigan in the mid-1980s. "Funding from the Federal Government had a huge impact on the evolution of the industry," Engelder said in an email, "but there was no instant gratification in this funding. The length of time from the Ford-Carter ramp up of DOE funding in, say 1975, and the Marcellus breakout in 2008 (let's do a little math) was 33 years."

Taxpayer investments went well beyond basic research. Consider:

• Massive hydraulic fracking (MHF) was first demonstrated by DOE in 1977. Mitchell received his 'slickwater' (or 'light sand') fracking technology from another oil company, Union Pacific Resources, which had adapted it from MHF.
• In 1986, the Department of Energy partnered with industry in Wayne County, WV, to achieve the first multi-fracture, air-drilled, horizontal Devonian shale well.
• In 1991, DOE and the Gas Research Institute, funded by a surcharge on gas, helped pay for Mitchell's first horizontal well -- a breakthrough technology that allowed gas to be absorbed from multiple fractures in the shale.
• In 1991, DOE provided micro-seismic (3D) mapping assistance through scientists with Sandia National Laboratory, allowing Mitchell to determine the location of the shale fractures.
• Twenty years (1980 - 2002) of federal tax credit subsidies (US Code Section 29) and different price supports provided strong taxpayer incentives for Mitchell's explorations. "The tax credits helped," Steward said, "as did the different pricing scenarios for newly discovered gas.
• Click here to see Breakthrough's Shale Gas Timeline: Two Centuries of Shale Gas Mining.

Steward emphasized the critical role played by government mapping technologies, in particular "micro-seismic mapping," which was first developed by the DOE to anticipate mine failure. "Frack mapping," as it is called in the industry, puts seismic tools into wells near where fracking is taking place, allowing geologists like Steward to understand where the gas fractures were. "The microseismic frack mapping was being done out of Sandia labs," Steward explained. "There was a brilliant engineer there. I was extremely impressed with him."

By 2000, Mitchell had proven they could cost-effectively frack shale for gas, and in 2002, Mitchell Energy was sold to Devon Energy for $3.5 billion.

The investigation found myriad fascinating details of how government-funded scientists, geologists, computer modelers, engineers, and bureaucrats made the shale gas revolution possible:

• Government support for unconventional gas dates back to Bureau of Mines' support for pulling natural gas from coal mines to reduce the risk of explosion in coal mines, resulting in the rise of coal-bed methane, a major source of natural gas.
• The U.S. for years funded radically experimental efforts, including large explosions underground, that were too expensive and risky for private firms to do.
• For decades DOE supported better drilling technologies, including better drill bits, which better protect the integrity of the rock formations, allowing for greater gas extraction.

The ability to cheaply extract gas from shale rock has transformed the global energy outlook. Shale gas doubles the amount of U.S. natural gas reserves, and may soon turn the U.S. into a net gas exporter -- a dramatic turnabout from the gas shortage just a decade ago. Today there is reason to believe that China, Europe and South Africa may be able to tap significant quantities of gas.

At the end of the interview we asked Steward -- a self-identified conservative who told Breakthrough that "Reagan did a world of good for the gas business" -- what he thought of the recent criticisms of government support for advanced energy technologies.

"I don't bad mouth government involvement in solar and wind because we have to be experimenting with that," Steward said. "We're not far enough along for solar and wind to provide much energy. But government has to be looking down the road. Industry doesn't look as far down the road as the government should. And politicians are often looking for their next election."

-- Reported and written by Michael Shellenberger, Ted Nordhaus, Alex Trembath, and Jesse Jenkins

Further Reading

The Hidden History of Shale Gas

Timeline of the History of Shale Gas

Interview with Dan Steward, former Vice President, Mitchell Energy

Interview with Penn State's Terry Engelder