JLF Memo
Mar. 9th, 2012: - johnlocke.org Manage Subscriptions

Fracking's promise of jobs, growth too compelling to ignore
By Jon Sanders

View in your browser.

Energy crises are as old as civilization itself. In his book The Ultimate Resource 2, economist Julian Simon has catalogued many examples going back thousands of years. Our predecessors feared they would run out of firewood, coal, oil, whale oil, etc., and be left cold and miserable. They didn't. Why?

Simon's insight is that the world's "ultimate resource" is humanity itself, our talent, energy, and entrepreneurial spirit. With a greater understanding of economics, specifically the motivations provided by that signal of relative scarcity, the price mechanism, Simon saw that the same processes that had people exhausting one resource also inspired enterprisers and inventors seeking its successor.

Oil is the crisis du jour, but how did we get on oil in the first place?

Then in the mid-1800's the English came to worry about an impending coal crisis. The great English economist, Jevons, calculated that a shortage of coal would bring England's industry to a standstill by 1900; he carefully assessed that oil could never make a decisive difference. ... Another element in the story: Because of increased demand due to population growth and increased income, the price of whale oil for lamps jumped in the 1840's, and the U.S. Civil War pushed it even higher, leading to a whale oil "crisis." This provided incentive for enterprising people to discover and produce substitutes. First came oil from rapeseed, olives, linseed, and camphene oil from pine trees. Then inventors learned how to get coal oil from coal. Other ingenious persons produced kerosene from the rock oil that seeped to the surface, a product so desirable that its price then rose from $.75 a gallon to $2.00. This high price stimulated enterprisers to focus on the supply of oil.

Today's chorus of worry grows insistent. We need to wean Americans off oil before it is too late. It's bad for the environment but good for the people who hate us. And we need it to cost less.

Meanwhile, the Ultimate Resource has been -- without the help of government, which is key -- investing tons of money, time, and effort. Their efforts resulted in the very recent discovery of commercially viable methods of hydraulic fracturing ("fracking"), which releases oil and natural gas trapped in solid and hitherto impregnable rock deep, deep underground.

Kevin D. Williamson touched on that huge investment (and risk!) in his Feb. 20 National Review article:

George Mitchell, the legendary gasman who staked his fortune on the seemingly crackpot idea that you could efficiently get gas out of a rock, [had] tried everything else. Range engineer Mark Whitley was with Mitchell in the early days, and still gets a little edge in his voice when he talks about the dicey prospect of having invested about $1 billion of a company worth only about that much in a technology that nobody thought would work. Noting that President Obama claimed that "it was public research dollars" that made shale extraction possible, he laughs without mirth, and looks like he wants to spit: "Not true," he says. "We tried everything known to man to get a rock to produce. There's a lot of people who claim to be the father of the Marcellus, but if you didn't put any money in or take any gas out, then what's that? It was industry studies, industry experience, and industry dollars that did this, and we've driven up production more rapidly than anybody thought possible." And it was far from a done deal for years: "We could have thrown in the towel any time during the first ten years, but the one guy who didn't want to quit was the guy in charge: George." ...

They tried all sorts of brews to get the shale to give up the gas, and, as the expenses mounted, they tried cheaper and cheaper alternatives, eventually settling on the low-tech combination of water and sand that turned out to be the thing that actually works. "Economics drove it," Whitley says.

Since then, Bloomberg has reported on "Americans Gaining Energy Independence With U.S. as Top Producer." The president boasts of "a supply of natural gas that can last America nearly 100 years." Environmentalists who otherwise voice support for clean-burning energy have opposed fracking on the stated basis that it might contaminate groundwater, but Environmental Protection Agency administrator Lisa Jackson completely dismissed that concern in testimony before Congress last year. A recent Vancouver study also finds no proof of groundwater contamination.

Meanwhile, unlike other states, North Carolina maintains a ban on fracking. Gov. Bev Perdue vetoed a bill that would have led to a review and likely changes in state law with respect to hydraulic fracturing. The state Senate voted last July to override her veto, but state House has not yet been able to muster up the bipartisan votes needed to override. In the meantime, the state Dept. of Environment and Natural Resources is charged to study oil and gas exploration in the state by directional and horizontal drilling and hydraulic fracturing and must issue a report to the Environmental Review Commission by May 1.

While North Carolina struggles with an ongoing abysmal employment situation, fracking is providing a welcome boon for North Dakota, Pennsylvania, and Ohio, among others. Being a latecomer in the game could have its own benefits, however; as Daniel Fine of the New Mexico Center for Energy Policy has explained, North Carolina is well positioned to survey and adopt the best practices, the best technology, and the best legal landscape. And the Deep River Basin in Lee and Chatham counties offers an especially promising area for development.

Click here for the Rights & Regulation Update archive.

 

Upcoming Events

Monday, Mar. 12th, 2012 at 12:00 pm Noon
A meeting of the Shaftesbury Society
with our special guest John Hood
"Ronald Reagan's Action Hero: The Story of John Carter, Warlord of Mars."

Tuesday, Mar. 13th, 2012 at 7:30 PM
2012 John William Pope Lecture
with our special guest Meghan L. O'Sullivan
"Making Sense of the New Middle East: The Dynamics and Their Implications for US Interests"

Saturday, Mar. 17th, 2012 at 9 a.m. - 3 p.m.
A Citizens' Constitutional Workshop in Morehead City, NC
with our special guests Dr. Troy Kickler & Dr. Michael Sanera
Workshop #2 in Morehead City: "What would the Federalists and Anti-federalists say about the current political and economic crises?"

Monday, Mar. 19th, 2012 at 12:00 pm Noon
A meeting of the Shaftesbury Society
with our special guest Professor Anthony J. Papalas
"The Fall of Greece, Keynesian Economics, and the European Union."

©2014 John Locke Foundation | 200 West Morgan St., Raleigh, NC 27601, (919) 828-3876