Part II: Betting on Progress and Technology

In recent years, natural gas producers in the United States have struggled, mostly in vain, to be taken more seriously in the energy world. Big oil companies like Exxon had concluded that natural gas reserves in the United States were not sufficiently abundant to warrant big investments in exploration and drilling. When small independent gas producers argued otherwise, they were often ridiculed.

But the natural gas folks now have numbers on their side due to new successes in getting gas out of shale rock. Geologists have always known that shale rock, often found in combination with coal and oil deposits, holds substantial amounts of natural gas. If a piece of shale rock is broken and lit with a match, it will actually burn for a few moments with a small flame.

The shale gas was previously considered unreachable, but advances in drilling techniques have changed that assessment. The result is a dramatic increase in estimated natural gas reserves. The Potential Gas Committee, loosely affiliated with the Colorado School of Mines, reported in June that natural gas reserves in the United States are actually 35% higher than believed just two years ago, and some geologists say even that estimate is too conservative.

"I used to say the nation is awash in natural gas," Hefner says. "Now I say we're drowning in it." (See price chart above, data here.)

Shale formations are deep underground — 6,000 feet or more — and the rock is relatively impermeable. Deep drilling is expensive, and in the past the amount of gas that could be reached was not considered sufficient to justify the cost. In recent years, however, gas producers expanded the use of "horizontal" drilling. After boring more than a mile below the Earth's surface to reach the shale layer, a drill operator will slowly "steer" the drill bit to one side, until it is heading sideways across the shale layer, thus achieving access to more of the shale than a traditional vertical well could provide (see chart above).

~National Public Radio, part 1 of 3-part series on natural gas. Part 2 available here, here's an excerpt:

In the energy world, Big Oil has long been the key player — with one notable exception: The natural gas business in the United States is dominated by small, independent companies. More than 80% of U.S. natural gas supplies are produced by companies with a market capitalization of less than $500 million. On average, these companies have only a dozen employees.

But their business is booming. New production techniques in recent years have enabled companies to extract natural gas from shale rock formations deep underground. As a result, estimates of accessible natural gas reserves have been revised dramatically upward. Small gas producers can justifiably take the credit for the transformation of their industry.

MP: What a great tribute to America's entrepreneurial spirit, the important role of small businesses for the U.S. economy, and a clear demonstration of how advances in technology and the invisible hand of the private sector are our most effective "energy policy."