Modern-day treasure hunters

My latest book review for the Financial Times was published in Friday’s FT Wealth.

The Frackers: The Outrageous Inside Story of the New Energy Revolution, by Gregory Zuckerman, Portfolio Penguin, 2013

In just five years, the US has enjoyed a remarkable transformation in the way its energy prospects are perceived. Until the middle of the past decade, there was much talk of finite resources, peak oil and growing dependence on foreign supplies. Today, America is a leading natural gas producer, enjoys falling household bills and has vast reserves of domestic energy at its disposal.

The Frackers is the human story of how this shift occurred. Gregory Zuckerman, a writer for the Wall Street Journal, tells the tale of the fracking industry based on 300 hours of interviews with 50 leading players. He describes how determined entrepreneurs developed the technology to squeeze oil and natural gas out of shale rock formations.

The men (and they were nearly all male) who achieved this goal were “wildcatters” rather than representatives of multinational oil companies. They were, in Zuckerman’s words, “modern-day treasure hunters” who drilled outside known oil or gas fields. Typically, they were hugely optimistic, self-confident and willing to take risks.

George Mitchell, the founder of Mitchell Energy, was a typical example. He was born to Greek immigrant parents in Texas in 1919. After studying geology and petroleum engineering at Texas A&M University, he served in the US Army Corps of Engineers during the second world war. From then on, he spent most of his long career searching for natural gas and in the associated business of real estate.

Although Mitchell was not the first fracker, he played a key role in developing it as a commercially viable technology. Like others he used millions of gallons of high-pressure liquid to break up underground rock formations to free natural gas. Yet his breakthrough came about almost by accident. In the mid-1990s, other companies experimenting with this technique were combining water with other substances including expensive gels. On the advice of one of his engineers, Nicholas Steinsberger, Mitchell rejected the conventional wisdom and dispensed with the gel. The new mixture proved unexpectedly effective even though it was originally motivated as a cost-saving measure.

It required more than one innovation for energy production to surge. The other crucial development was the use of horizontal drilling. Although this technique is much more expensive than conventional vertical drilling it enables the extraction of hydrocarbons from previously inaccessible sources. Two engineers working for the US Department of Energy first developed it in the mid-1970s, but it did not start to achieve commercial success until 1986.

The combination of these two technologies has become known as hydraulic fracturing or fracking. It was only a decade ago that it became a model for extracting energy from shale formations around the country. Other emerging technologies, such as three-dimensional seismic imaging and diamond-studded drills, also helped make the technique more effective.

Taken together, these technologies have strengthened America’s hand in the world. They have made it less dependent on foreign sources of energy and given its firms better access to cheap energy. Zuckerman argues they have also put it in a position where it can more easily impose sanctions on Iran. A side-effect of the fracking revolution is a reduced need for energy imports from the Middle East.

Although The Frackers is generally upbeat about the fracking revolution, it does not paint an entirely glowing picture. Its entrepreneur-heroes are prone to their fair share of personal problems and business failures. If they have two characteristics in common, they are a willingness to take big risks and luck running in their favour at crucial times.

Zuckerman has some sympathy with environmentalists’ criticisms of fracking although he argues they are often overdone. A film documentary image of a Colorado homeowner setting fire to water from a kitchen tap is not necessarily the result of fracking. Natural gas has leaked into poorly sealed wells for a long time. Zuckerman’s concern is that this potent greenhouse gas often leaks from wells and pipelines.

The Frackers provides an accessible introduction to the fracking revolution for those who enjoy reading the biographies of entrepreneurs. Those who prefer a more thematic or technical approach are probably better off starting elsewhere.