Wednesday, July 18, 2012

Lessons from the U.S. Shale Revolution:

It Wasn't from Gov't Planners, but Private Entrepreneurs 

Here is an interesting article posted by Dr. Mark J. Perry on his Blog concerning how recent economic improvement was a result of Private Entrepreneurs and not Government.  
From the WSJ editorial "The Shale Gas Secret":

"One of the few bright patches in the Obama economy is the booming production of shale gas and, increasingly, oil. The U.S. ranked 159th in GDP growth last year. But in natural gas production, it's now No. 1. 
How did that happen? Partly it's the luck of geology, though plenty of other countries have abundant shale resources. Partly, too, it's American technological leadership in developing hydraulic fracturing (fracking) and horizontal drilling. But those techniques are now widely understood the world over.

What gave the U.S. its edge is that the early development risks were largely borne by small-time entrepreneurs, drilling a lot of dry holes on private land. These "wildcat" developers were gradually able to buy up oil, gas and mineral leases from private owners while gathering enough geological data to bring in commercial producers. 

Now compare this to Europe, which sits on an estimated 639 trillion cubic feet of shale gas yet remains heavily dependent on Russian imports. The governments of France and Bulgaria have banned fracking on dubious safety grounds, with nary any pushback from their publics. That might not be the case if French farmers, for example, were able to profit from the riches underneath their terroir.

Countries such as Poland and Great Britain are willing to develop their shale potential. Yet in both places the absence of private mineral rights has delayed exploration and production.

In time, perhaps even the French will recognize their lost opportunity and lift their ban on fracking.  

But the deeper lesson is that this is a revolution that came about not through government planning or foresight, but through a combination of individual risk-taking and private property. Europeans could benefit by doing more to broaden the latitude for both."

Dr. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan

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