Framing the Dialogue

Parsimony – You Didn’t Drill That

Yet again an Associated Press story is the muse of a Parsimony post. I don’t seek out AP stories, but it often seems like their reporting often shows the bias of the mainstream media. This article is just in time for the 2012 election cycle and puppets Obama’s misspeak (by misspeak I of course he blurted out what he really believes) regarding government’s role in funding private business. By the way this was a front page article in my local “conservative” newspaper.

First the headline (with a link to the original story)…

Federal Dollars Fueled Natural Gas Boom

…Now the story with my bold comments:

It sounds like a free-market success story: a natural gas boom created by drilling company innovation, delivering a vast new source of cheap energy without the government subsidies (in this case subsidies are millions and millions of dollars of tax money given directly to the manufacturers) that solar and wind power demand (these two “technologies” still cannot, after decades of research, provide reliable and cheap energy).

“The free market has worked its magic,” industry group Barnett Shale Energy Education Council exclaimed over the summer.

The boom happened “away from the greedy grasp of Washington,” the American Enterprise Institute, a think tank, wrote this year.

But those who helped pioneer the technique known as hydraulic fracturing, or fracking, recall a different path. Over three decades, from the shale fields of Texas and Wyoming to the Marcellus in Pennsylvania, the federal government contributed more than $100 million in research to develop fracking, and billions more in tax breaks (The AP provides no back up to the dollar amounts claimed nor what they mean by “tax breaks.” This is a common ploy to criticize a corporation as is the use of the word “subsidies.”).

Those industry pioneers say their effort shows the government should back research into future sources of energy — for decades, if need be. For all its success now, many people in the oil and gas industry once thought shale gas was a waste of time. (I don’t disagree that government can help to fund research, but it would be better to get government out of the way and let the free market provide research dollars. Remember that every dollar that the government gives away has to first be taken away from someone. Corporate research is the cost of doing business and the way to keep ahead in their field. Government is rarely fair and often just rewards those who “buy” favoritism of politicians.)

“There’s no point in mincing words. Some people thought it was stupid,” said Dan Steward, a geologist who began working with the Texas natural gas firm Mitchell Energy in 1981. Steward estimated that in the early years, “probably 90 percent of the people” in the firm didn’t believe shale gas would be profitable. (And it wasn’t until prices rose)

Shale is a rock formation thousands of feet underground. Among its largest U.S. deposits are the Marcellus shale, under parts of Pennsylvania, New York, Ohio and West Virginia, and the Barnett shale in north Texas. Geologists knew shale contained gas, but for more than 100 years the industry focused on shallower reserves (the low handing fruit which is typical and less expensive). With fracking, large volumes of water, along with sand and hazardous (“hazardous” is used even though there is no evidence to support any health claims. This is a typical buzz word to scare people. Chlorine with is used to treat your drinking water is hazardous…especially if you are a fish.) chemicals are injected underground to break rock apart and free the gas.

In 1975, the Department of Energy began funding research into fracking and horizontal drilling, in which wells go down and then sideways for thousands of feet. It took more than 20 years to perfect the process. (It would have been nice and balanced to provide some information about private companies who were involved and how many billions of dollars they invested. That, however, would be balanced and this article is about “If you have a company you didn’t build that.)

Alex Crawley, a former Department of Energy employee, recalled that some early tests were spectacular — in a bad way. A test of fracking explosives in Morgantown, W.Va., “blew the pipe out of the well about 600 feet high” in the 1970s, Crawley said. Luckily, no one was killed. He added that a 1975 test well in Wyoming “produced a lot of water.” Steward recalled that Mitchell Energy didn’t cover the cost of fracking on shale tests until the 36th well was drilled. “There’s not a lot of companies that would stay with something this long. Most companies would have given up,” he said, crediting founder George Mitchell as a visionary who got support from the government at key points. (What about the times when government didn’t give support? The visionary didn’t give up!)

The natural gas and petroleum industries accounted for about $2.8 billion in federal energy subsidies in the 2010 fiscal year, while $14.7 billion went to renewable energies, the Department of Energy found. The figures include direct expenditures and tax credits. (The AP again wants to lead you down the path that all “subsidies” are created equal. The “tax credits” allowed to energy producers are simple tax deductions available to any company. They buy a piece of equipment they can depreciate it for a tax deduction. The left like the AP like to blur this and call it a subsidy versus the true “direct expenditures” of renewable favorites like Solyndra who got big loans and defaulted. Depreciating a gas drilling rig is not the same as a cushy government loan to a big campaign donor. They are not the same and for the AP to lump them together is simply a lie.)

Congress passed a huge tax break in 1980 specifically to encourage unconventional natural gas drilling, noted Alex Trembath, a researcher at the Breakthrough Institute, a California nonprofit that supports new ways of thinking about energy and the environment (okay he is from California which makes him suspect already). Trembath said that the Department of Energy spent about $137 million in gas research over three decades (Solyndra was half a BILLION dollars and they were one of many), and the federal tax credit for drillers amounted to $10 billion between 1980 and 2002 (again tax credits are not the same as direct money given away). The work wasn’t all industry or all government, but both.

One step at a time, the problems of shale drilling were solved. Crawley said Energy Department researchers processed drilling data on supercomputers at a federal lab. Later, technology initially used to track sounds of Russian submarines during the Cold War was repurposed to help the industry use sound to get a 3-D picture of shale deposits and track exactly where a drill bit was, thousands of feet underground. (I’d like to see some numbers about the amount of tax dollars collected from the energy industry during these research periods. My guess it is a heck of a lot more than the amounts listed. Wouldn’t it have been more efficient to let the companies keep their money for research and just skip the middle-man or government?)

Renewable energy has had similar fits and starts, plagued by the costs and complexities of developing technology. President Obama and Republican nominee Mitt Romney tout the benefits of shale gas but differ over the government’s role in subsidizing energy research. Obama has suggested continued funding for renewable energy but eliminating billions of dollars in subsidies (again “subsidies” is substituted for normal business deductions. Gas companies are not getting wads of cash like renewable companies are getting from Obama) for oil and gas companies. Romney calls that an unhealthy obsession with green jobs and vows to cut wind power subsidies, yet keep federal support for ethanol (even a free market guy like Romney is weak on this. Why support an inefficient fuel like ethanol? Both sides of the aisle have powerful friends in corn).

The fracking pioneers point out that it’s impossible to predict how and when research will pay off. “It wouldn’t be research if you already knew that it was going to be effective,” Crawley said. Terry Engelder, a Penn State University geologist known for his enthusiastic support for gas drilling, said the story of how shale gas went from longshot to head of the pack — and how long that took — shows that serious support for renewable energy research makes sense, too. (Support is good as long as the government in power doesn’t get to pick winners and losers as has been the case. The fact that the geologist is from a university is suspicious as they LIVE by government research money. As such their view is tainted by dollars.)

“These renewables have a huge upside,” Engelder said. “In my view, the subsidies are really very appropriate.” (Translation – I can keep my cushy professor job and make loads of money doing research. The research is important, but I would rather not have the government pick the winners and losers.)

 

“You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. You built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

 – – Elizabeth Warren (D-MA) – –

“if you’ve got a business — you didn’t build that,”

– – B.H. Obama – –

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