Did the federal government invent the shale gas boom?

Michael Giberson

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.

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20 thoughts on “Did the federal government invent the shale gas boom?

  1. From my read, they have three primary conclusions:

    1) “But the lesson of the shale gas revolution is that we should not be so quick to judge government investments in energy technology.”

    2) “[T]he story is basically the same for nuclear power, natural gas turbines, solar panels, and wind turbines — pretty much every significant energy technology since World War II. That’s because the private sector alone cannot sustain the kind of long-term investments necessary for big technological breakthroughs in the midst of volatile energy markets and short-term pressure to produce profits.”

    3) “No doubt, government energy innovation investments could be made more efficiently and effectively. But it would be a mistake to imagine that we’d be better off without them.”

    While I agree that 2) may be a bit overreaching given the support they have presented, but 1) and 3) suggest humility instead of brash claims about government support for energy technologies. As an economist and reader of Hayek, surely you can appreciate that message.

    p.s. (Although I would note that conclusion 2 somewhat conflicts with conclusion 1)

  2. Thank you for the perspective. It’s hard to read articles like the one you linked to as the market-oriented side of me keeps screaming ‘BUT, BUT’ despite my lack of historical familiarity with fracking technology.

  3. Another, perhaps simpler way to approach the idea: if we tilted history toward a little more federal government research and policy involvement and a little less dogged entrepreneurial effort, would the shale gas boom have been sooner or later? Then ask the reverse question, if we tilted history toward more entrepreneurial effort and less federal government intervention, would the shale gas boom have been sooner or later?

    My own answer to this pair of questions may be that less federal government intervention would have resulted in delaying the shale gas boom because in this scenario the already-lower price of natural gas would have dissuaded wide-scale deployment of the technology. (Please notice that this is not an argument for more federal government intervention.)

  4. Issues about fracking should be solved with appropriate regulations. Of course burning natural gas is much better than burning coal. I suspect the coal lobby is just trying to deter the inevitable switch to natural gas. Because of shale gas long-term contracts for natural gas are available.

    There is another reality about renewables, primarily solar and wind, they cannot replace coal and natural gas generated electricity by any great amount. They are simply expensive supplements.

    I’m following this guy in Austin, TX – Andrew West who has some technology to burn natural gas even cleaner (no NOX and 80% less CO2). It’s an old technology called oxy-fuel where the natural gas is blended with pure oxygen. In the past it wasn’t adopted because the oxygen was too expensive. He claims to make it affordable enough to produce electricity that’s less than coal-generated electricity.

    If I understand his math correctly, we can retrofit all coal and natural gas power plants (and many industrial boilers) economically, meaning the utilities could pay for it without an increase in the cost of electricity. The result would be the elimination of NOX and SOX and an 80% reduction of CO2. Solar and wind advocates can’t make those claims. Despite spending $1 trillion in the last 10 years, solar and wind installations didn’t even keep up with new demand. That means we made NO progress on reducing CO2 emissions.

    Too much of the energy conversation seems to be “fossil fuels versus renewables” and we’re missing the chance to make significant progress by simply cleaning up the burning of natural gas with oxygen. There’s more, he also provides affordable nitrogen to the power plants for cooling so they no longer need to damage rivers, lakes and streams.

    He has some other solutions, too. Agriculture and education included.

    It’s worth a look: http://www.solutioneur.com

  5. Pingback: Giberson responds to Breakthrough on shale gas | JunkScience.com

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  7. Alex White,

    I hate to “burst your bubble”. Combusting a given quantity of natural gas (CH4) with oxygen (O2) produces the same quantities of both water vapor (H2O) and carbon dioxide (CO2). Combustion with O2 removes the nitrogen (N2), which does not participate in the combustion reaction, with the exception of the production of a small quantity of NOx. The presence of the N2 in the combustor also moderates the flame temperature, since the N2 must be heated to the combustion temperature; and, it reduces the potential efficiency of the process, since it carries heat with it into the exhaust.

  8. Ed Reid,

    That’s what I initially thought, too. But the increased temperature of oxy-fuel combustion requires only half the amount of natural gas to produce a kWh. So, you get more electricity using less natural gas. That would equate to less CO2 per kWh produced. A group in CA and in China has proven that part of the equation.

    If I remember correctly DOE has spent +$30 million with Praxair trying to get affordable oxygen for the same purpose – oxy-fuel. They were working on a ceramic membrane. The cement industry has also developed an oxygen enhanced kiln, reducing CO2 dramatically.

    I find countless references for oxy-fuel in industry and the power sector, but they don’t do it because the oxygen is too expensive. I’m not sure how they’re getting oxygen so cheap, but it looks promising.

  9. Alex White,

    That would result in ~50% less CO2 per kWh, not 80% less, if it occurred in the real world.

    However, there are problems with the scenario. None of the existing facilities were designed with materials which would withstand the higher temperatures. That is a particular issue with combustion turbines.

    Also, the exhaust temperature must remain above a certain level to avoid condensation in the exhaust system. That places an upper limit on process efficiency, though that limit would be higher than for a system using air.

    Finally, the combustion product volume is substantially reduced as a result of the removal of the nitrogen, which changes the convection heat transfer in the heat exchangers, reducing heat transfer efficiency.

  10. Ed Reid, The 80% reduction is compared to existing coal and NG power plants emissions of CO2. DOE has funded a lot of research on oxy-fuel and the results indicate retrofitting existing power generators would cost $1 million per MW of capacity. The result would be a 70-80% reduction of CO2 emissions and no NOX and SOX. Unfortunately most of the DOE research is focused on oxy-fuel combustion with coal.

    Solar projects cost $30 million per MW of actual output.
    Wind costs about $12 million per MW of actual output.

    It seems to make more sense to clean up our existing facilities with oxy-fuel combustion and wait for solar and wind to make economic sense. It would cost $500 billion to retrofit coal and natural gas and the reduction of CO2 would be 70-80%. Spending the same amount on solar and wind would reduce CO2 less than 10%, an amount that really makes no difference.

  11. Alex White,

    The steady state operating efficiency of a current technology coal fired power plant is ~40% (coal in to electricity out). An 80% reduction in CO2 emissions for the same power output with the same fuel source would equate to a steady state operating efficiency of ~200%. The First Law of Thermodynamics would suggest that is a highly unlikely result.

    [0.40 / (1-0.8) = 2.00]

  12. Ed Reid,

    The 80% reduction represents the difference between todays electricity mix and retrofitting all existing NG/Coal power plants to NG-oxy-fuel combustion. Blending NG with oxygen results in more heat and therefore more kWh.

    Read a little here:

    http://books.google.com/books?id=_wN6T32wMdsC&pg=PA36&lpg=PA36&dq=oxy-fuel+natural+gas+cf&source=bl&ots=vTyWaFkPqN&sig=HgYh2ulHVwEIjiduf36YorEMc7k&hl=en&sa=X&ei=9wPyTuLkNYTY2gWP8YiuAg&ved=0CHgQ6AEwBA#v=onepage&q=oxy-fuel%20natural%20gas%20cf&f=false

    My point is we shouldn’t waste money on wind and solar schemes if the real solution is to provide oxygen and nitrogen (cooling) to our power plants.

  13. Alex White,

    The 80% reduction figure is thermodynamically implausible, unless all existing coal-fueled power plants and all existing NG simple-cycle and combined-cycle turbine power plants were replaced with NG-O2 combined cycle power plants. However, that would require the availability of gas turbines which could withstand the higher flame temperatures.

    The typical figure used for the efficiency of the US electric generation fleet is 30%. Coal represents ~50% of all generation, while natural gas represents ~20%. Replacing all coal plants with equivalent efficiency natural gas plants would reduce their carbon dioxide emissions by ~50%, or a 40% reduction from current fossil-fueled generation fleet emissions. A doubling of generation fleet efficiency (from 30% to 60%) for this all NG fueled generation fleet would further reduce fossil-fueled fleet emissions by ~50%. That would get you most of the way to an 80% reduction. However, simple replacement of all current non-combined-cycle fossil-fueled power plants with NG combined cycle power plants would get you there without the O2.

    Combustion of a quantity of any fuel containing 1000 Btu of energy, whether in air or oxygen, will result in the liberation of 1000 Btu of thermal energy. Combustion in oxygen, rather than air, would increase the flame temperature, since no heat was being consumed in the flame to raise the temperature of the nitrogen from ambient temperature to the flame temperature. The total amount of thermal energy contained in the combustion products is determined solely by the energy content of the fuel source, assuming that combustion completes; that is, all carbon in the fuel reacts to produce carbon dioxide and all hydrogen in the fuel reacts to produce water vapor. Combusting in oxygen reduces the volume of the combustion products and increases their temperature, but does not alter their energy content. The reduction in volume is the result only of the absence of the nitrogen.

  14. NG+AIR:

    CH4 + 2.2 O2 + 8.27 N2 > CO2 + 2H4O + 0.2 O2 + 8.27 N2 (1)
    1 Fuel + 10.47 Air > 8.7% CO2 +17.4% H2O + 1.7% O2 + 72.1% N2

    NG+Oxygen:

    CH4 + 2.2 O2 > CO2 + 2H2O + 0.2 O2 (4)
    1 Fuel + 2.2 Oxygen > 31.3% CO2 + 62.5% H2O + 6.3% O2

    Combustion efficiency is 150%

    http://www.industrialheating.com/IH/Home/Images/ih0611-igc-table1-lg.jpg

    NG+O enables the inexpensive capture of the remaining CO2 because there are no NOX, it’s just H2O and CO2.

    Isn’t that the point?

  15. Maybe it should have said “total power is 150%.”

    You’re not taking into account the reduced fuel amount. Conventional NG uses 7cf per kWh, with oxy-fuel-NG it only requires half as much.

    The point is we can get twice the amount of electricity from the NG we currently use by adding oxygen. It also creates a near pure exhaust of just H2O and CO2.

  16. 3412 Btu/kWh / (7scf * 1050 Btu/scf) = 46% thermal efficiency

    Achieving that 1 kWh output with half the NG would require an efficiency or 92%. That efficiency is routinely achieved in condensing NG residential furnaces combusting the NG in air. However, achieving that efficiency requires condensation of a significant fraction of the water vapor in the combustion products. That could conceivably be achieved in a NG combined-cycle power plant if the exhaust gas were used to preheat the combustion air. That level of efficiency can be achieved with air, but requires large stainless steel heat exchangers. Even if oxygen were used, rather than air, that efficiency would still require the stainless steel condensing heat exchangers, though they would be smaller because of the reduced exhaust gas volume.

  17. With oxy-fuel I don’t think you have to preheat the gas because the N is gone. The other reason for using just oxygen is the higher temps and no NOX. The exhaust is only H2O and CO2, relatively easy to separate/capture. Compared to coal-generated electricity the reduction of CO2 is appx. 80%.

    I’d rather have cleaner burning and more efficient fossil fuels, than wasting billions on wind and solar schemes. I guess the breakthrough is the low cost for oxygen this guy has. I know DOE endorsed oxy-fuel combustion and worked with Praxair, but they couldn’t reduce the cost.

  18. This is an outstandingly informative series of posts, beginning with the main article, providing that one uses proper discretion and doesn’t go overboard in deriving final conclusions. An interesting note bearing on the point that government support was involved and may be needed to sustain longterm research on big technologies through price fluctuations: the work on government sponsored research in 1977 would have been part of Jimmy Carter’s intense focus on alternative energy – which included shale. (“energy equivalent of war …..”). Unfortunately, Carter was driven by the crises of the moment and did not even consult with his Democratic leaders. So most of his initiatives failed. There would have not been much cooperative effort with major oil companies because C. was on the outs with them.

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