Companies have been hesitant to invest heavily in technology before. Heck, at the start of the present price runup, there were major drilling companies who were slow to invest in more rigs, and oil companies who appeared to be very cautious because of the price.
As you said, that is part of the game, and should not be borne by the taxpayer. I don't think government (taxpayer) subsidy should happen either way.
If shale oil comes online in an economical enough way it will survive the same price quirks as the rest of the industry. If it comes online in a sizeable enough way to replace the depleting domestic reserves and the imported oil, without so reducing the price of oil that shale oil becomes uneconomical, then in a strategic sense, this would be not only do-able but preferable.
If the appearance that enough shale oil coming on line causes a price drop like that of 1998/9, then the net effect is that we will end up more dependant on imported oil, at least in the short term.
That last price crunch caused the plugging and abandonment of a raft of marginal (stripper) wells which were way behind the money curve when the lower price ($6.50/bbl for sweet crude, $4.50 for sour up here) was compared to lift costs and maintenance.
(Granted, the IEA report which caused that crash did not take into account the Asian expansion which has occurred, but the incorrect predictions of a worldwide glut actually caused a net reduction in domestic production.)
Individually, stripper wells don't put out much, but in aggregate, the production was substantial. Even at today's prices, roughly a factor of 10 higher, those wells would not be recompleted.
So here is my point:
If the goal is to achieve energy independance, it will have to be done without upsetting the proverbial applecart and driving prices below the level where both conventional and oil shale production are economical, or the development of both types of reserves may falter.
Artificially and preferentially inflating the price of shale oil in such circumstances will only hurt the domestic conventional oil industry.
If shale oil is not capable of replacing that depleting production, then everything but shale oil, (the part of the industry which is NOT taxpayer subsidized,) will have been struck another 1986 type blow, and the recovery will take longer, because the price will have been artificially depressed.
Investors will be 'once burned, twice shy' all over again.
I remember new drilling rigs being sold at auction and cut up for scrap.
The net effect could be increased dependance on foreign sources.
If the goal of the subsidy is to make the economic climate "safe" for the development of shale oil, why not place price supports in the form of a tariff on imported oil instead, which would bolster the value of domestic crude, regardless of source (oil shale or more conventional reservoirs).This could kick in at some floor price per barrel, would support the whole industry, and raise funds as well instead of pull money out of the budget and throw the bill to the taxpayers.
It is so seldom that government does a damned thing which is beneficial to the oil industry in general, that I am suspicious of subsidizing a relatively unproven technology against one which has done the job.
If the panic occurs in the pits, and the price crashes, the buggywhip makers might see a boom yet.
These (Bakken) wells generally hit payout in under 1 1/2 years, depending on where they are drilled, and on the ND side of the basin, as opposed to the Richland County, Montana field, there is not yet enough production data for me to give you an idea of profitability.
Some of the Montana wells, (which have different reservoir lithology from the N. Dakota wells) hit payout in under 6 months, with oil cheaper than it is now ($20/bbl--but drilling costs were less, too).
I am not too worried, really. The technology we use to produce these could easily cross over into shale production, and I worked that area of Colorado doing Cozette/Corcoran gas wells years ago. I have been a registred professional geologist in Wyoming for 15 years, so I'll find work. I just might have to drive a little farther to get to the location.
If (and I've no direct knowledge of whether or not this is/will be the case) unsubsidised large-scale oil-from-shale production comes online at $25 (just to have a number), then strippers and others whose cost is above $25/bbl will take a hit in the mktplace. I don't consider this either 'good' or 'bad', just the mktplace in operation.
Your point about capital being reluctant, having previously been burnt by collapses in the price of crude, is perfectly well taken. No quarrel at all.
This notion of 'energy independence' is a chimera. The political class have, and have had, exactly no intention of allowing this nation to become either entirely or mostly energy self-sufficient. However, just for the sake of argument, let's say that I'm 100% wrong here, and that the political class sincerely want to reach (or move toward) self-sufficiency.
OK, clearly, because energy usage will grow over time unless a society collapses (per Freeman Dyson and others), then necessarily, to reach self-sufficiency, supply must be increased. While there are lots of ways to do this, the one that will be most readily adopted (voluntarily) is the one with the lowest net cost of production and distribution. That may be oil from shale or it may not -- don't know because I can't get a good handle on the price of crude equivalent from shale, tar sands, etc.
The point here -- and you alluded to it -- is that, if oil from shale (or some other alternative) is or becomes or seems to be becoming, ceteris paribus, an economically viable supply, there will be a price counterattack from the Saudis. When (again, this postulates that the gov't really are interested in self-sufficiency) the counterattack occurs, a la 1986 and 1998, a reasonable gov't policy would be the introduction of a tariff on Saudi (et al.) crude, to a point very mildly above the cost of production/distribution of the alternative supply, whatever it turns out to be.
We've let the Saudis mess up your industry on several occasions, as you well know. Why the devil should we continue to suffer from what the idiots in the lame-stream media usually call 'predatory pricing', for that's exactly what Saudi policy has been for 20-odd years?
Now, such a tariff most certainly is a subsidy to oil from shale (or whatever alternative), but this subsidy doesn't particularly benefit that portion of the energy industry in broad. What it does do is allow the alternative to stay in production (and earn a return on capital) and prevent the Saudis from controlling supply, especially the famous 'marginal barrel' of supply. This is absolutely essential to approaching self-sufficiency.
Which is why you and I are not likely to see large-scale alternative production in our lifetimes. The gov't haven't the slightest intention of allowing us to approach self-sufficiency. They've a vested interest in maintaining 'crises' when and where possible. The sheeple are much more easily controlled when frightened -- and this gov't will stick at nothing to maintain and increase its control.
Don't like it? Neither do I. However, given the gov'ts feckless performance in assuring an energy supply at required levels and given its endless interference in the energy industry, typically with very counterproductive results (viz. Jimmuh Peanut, for one), I claim there is no other rational explanation that covers all the facts and describes all gov't actions to date.
Net bottom line: I loathe subsidies, but, to approach self-sufficiency, a subsidy via tariff is necessary; without one, the Saudis will dump the price ad libidem in order to try to wreck any large-scale alternative production, and we'll be back on the same old treadmill. As a guess, I think a transition period of about 5-6 years is required to establish whatever alternative production firmly and present the Saudis and their buddies w/a fait accompli.
FReegards!