"Rather than expand government, public policy should end preferential subsidies for politically favored energies and privatize such assets as public-land resources and the Strategic Petroleum Reserve. Multibillion-dollar energy programs at the U.S. Department of Energy should be eliminated. Such policy reform can simultaneously increase energy supply, improve energy security, reduce energy...
5. What is the history of governmental support for natural gas and fracking?Submitted by MikeChalberg on Wed, 2012-05-02 10:05
More FAQs in:
The natural gas industry as a whole, as well as fracking specifically, have been federal subsidized for decades. Accessing deep gas deposits beneath thick layers of shale is an extremely difficult process. Though fracking technology didn't originally receive government support, the federal government began to invest in the technology following increased levels of lobbying for financial support throughout the 1970s and 80s. This continues today.
The first large-scale federal investment in shale gas occured in the 1960s. The U.S. Department of Energy and the Atomic Energy Commission worked together in detonating underground atomic bombs in New Mexico and Colorado. The bombs succeeded in cracking the shale and releasing the gas, but the project was quickly abandoned due to concerns over the levels of radiation.
Several years later, the first hydraulic fracturing (the form of drilling that we refer to as "fracking" today) was completed. It was a far too costly and massive undertaking for an individual company at the time to carry out. Because the Department of Energy saw the potential in this new process, fracking companies enjoyed continuing financial support from the federal government. Without this support, some argue, the industry would not have been able to survive and succeed today. As one proponent of energy subsidies argues:
"Private firms are really good at small, fast, smart, and cheap, but they mostly don’t do big, slow, dumb, and expensive, because the benefits are too remote, the risks too great, and the costs too high. But here’s the catch. You usually can’t do small, fast, smart, and cheap until you’ve done big, slow, dumb, and expensive first. Hence the reason that, again and again, the federal government has played that role for critical technologies that turned out to be important to our economic well-being."
The recent success of the natural gas industry has many hopeful that forms of renewable energy might take a similar route. Like fracking in its early years, these energy sources are thus far inefficient and small-scale, but continue to receive federal money in order to increase research and development with the goal of eventually creating cheaper, cleaner, and safer forms of energy.
Indeed, natural gas followed a similar path. As mentioned earlier, the natural gas industry was in a seemingly inescapable lull in the 1970s, just prior to receiving significant government support. The Eastern Gas Shales Project began in 1976 and changed the future of natural gas. By the mid-1980s natural gas production began to steadily rise.
The man widely credited as being the pioneer of the fracking industry, George Mitchell, was well known throughout the 80s and 90s for petitioning the federal government for increased support. On the heels of the success from the Eastern Shales Project, Mitchell was able to garner the aid of the Department of Energy, Sandia National Laboratory, and the Gas Research Institute. Mitchell's company was finally able to hone the technology needed to drill both deeper into the earth as well as horizontally, two vital steps in making fracking an extremely efficient and lucrative procedure. Moreover, it was through this project that microseismic imaging was developed, allowing natural gas prospectors to get a much more detailed and accurate picture of the shale formations and natural gas reservoirs.
"The incentive provisions of the Section 29 tax credit were designed to reward efficient unconventional gas development and performance. During a time when national average wellhead natural gas prices were between $1.50 and $2.50 per Mcf, the tax credit for tight gas was about $0.50 per Mcf and for gas shales and was on the order of $1.00 per Mcf for coalbed methane, adding considerable economic value to the efficient production of these resources. The tax credits also helped justify the high investment needed for initial infrastructure."
This report also argues the the initial support through these tax credits and subsidies allowed the industry to construct the infrastructure base, so that even with diminished federal support, the industry would be established enough to survive and, hopefully, thrive. This is of course the stated goal of any federal support for energy.
One of the more recent breakthroughs in fracking technology came in the late 1990s. It was then that the chemical solution, "slickwater," was officially developed and put into use. This formula is vital in quickly and thoroughly creating fissures in the rock, while also keeping the cracks wide enough for the gas to leak upwards. Prior to this breakthrough, slickwater research had been the recipient of federal aid for over 25 years. It is new technology such as this which has the potential to make huge impacts on any energy industry.
Some argue that this technology would have emerged without any federal support; hence, the belief that renewable energy should not receive government subsidies, or at least less than the industry is currently receiving. Yet, because no fracking company has existed without being subsidized, others believe this argument cannot be substantiated. The former Vice President of Mitchell Energy, Dan Steward even acknowledged the role of federal support in developing natural gas: "They did a hell of a lot of work and I can't give them enough credit for that. DOE (Department of Energy) started it, and other people took the ball and ran with it. You can't diminish DOE's involvement." Steward went on to add, "Government has to be looking down the road. We really cannot wait to develop those other energies. Industry doesn't look as far down the road as the government should."
In 2011, the New Alternative Transportation to Give Americans Solutions Act (NAT GAS Act) was proposed. This would grant billions of dollars to the development of vehicles run on compressed natural gas. Again, just like those arguing on behalf of solar or wind power, NAT GAS supporters have claimed that the bill will add thousands of jobs, cut energy prices, and lessen America's energy dependence.
President Obama has openly supported government subsidies for natural gas and fracking, taking credit for its recent successes. And like his support for "clean coal," Obama's support for subsidies for these fossil fuels has drawn criticism from many supporters of increased renewable energy. Meanwhile, others have criticized the President's support for the alternative energy sector. The history of government subsidies for energy research, development and production makes the current discussion very complicated and reveal the many nuances behind it.
The recent boom in natural gas and fracking in light of significant government support help make the debate over the government's role in energy very interesting. The key, however, in this debate, as in most debates, is finding consistency. All forms of energy in America have long been subsidized. Should this continue to be the case? There have certainly been successes and failures in all energy fields. But would America be better off with less regulation, fewer subsidies, but increased risk? When attempting to come to a conclusion over this, it is crucial that the full history be examined and assessed. The current state of affairs does not provide sufficient evidence for a conclusion to this question.