America’s geopolitical gusher

November 26, 2012

ISTANBUL — Fatih Birol, the International Energy Agency’s chief economist, is not prone to hype. So industry executives listen when he calls the surge of U.S. oil and gas production “the biggest change in the energy world since World War II.”

“This is bigger even than the development of nuclear energy,” said Birol in an interview just minutes after he had briefed dozens of the world’s leading energy players and policy makers over breakfast at the fourth annual Atlantic Council Energy and Economic Summit here on the IEA’s World Energy Outlook 2012. “This has implications for the whole world.”

Where Birol lingered longest in his briefing was on a slide, projected for dramatic effect on a giant overhead screen. It was history by PowerPoint, first showing U.S. energy production through 2030 from conventional sources. That scenario left America as a middling producer requiring imports as far as the eye could see. The next two overlays added shale gas and “tight oil” – products of hydraulic fracking, horizontal drilling and America’s God-given geology. According to IEA projections, the U.S. will overtake Russia as the world’s top gas producer by 2015 and will pass Saudi Arabia as the No. 1 global oil producer by 2017. By 2035 the U.S. is likely to be energy self-sufficient and an exporter of oil and liquefied natural gas. Experts are only now beginning to absorb a gusher of geopolitical consequences.

 

Just when it seemed America’s global influence might be ebbing, the world’s leading military and economic power was adding unconventional energy weapons to its arsenal. The Obama administration – confronting fiscal cliffs, Middle Eastern conflagrations and China’s rise — is only now beginning to understand how to leverage this energy windfall as the president shifts his efforts from re-election to historic legacy.

Those who have despaired about American decline – either relative or absolute — in a world where less democratic and benevolent powers are rising, now hope for an American comeback. Those less inclined toward U.S. leadership worry that this fossil-fuel blessing might reverse the tide toward a more politically humble and environmentally conscious America.

Some of the greatest benefits of the boom could be transatlantic in nature. Several European countries thought to be rich in shale gas resources – Ukraine, Poland, Romania and Bulgaria – have paid a considerable commercial and political price for their continued dependence on Russian gas at a time when a European Union anti-trust action against Gazprom has only deepened tensions. That said, Europe has been slow to embrace unconventional gas and oil extraction; France has a moratorium on fracking, and environmental groups are slowing development elsewhere.

Here’s where concerted U.S. government and private-sector support could pay rich dividends, diversifying Europe’s energy sources and winning new markets for U.S. extractive and environmental technologies. David Goldwyn, a former U.S. State Department special envoy for international energy, wrote in the New York Times that the U.S. “should assist others who want to develop their own resources … by helping their governments put in place the fiscal, environmental and safety regimes necessary to facilitate the growth of robust domestic markets.”

Gulf Arabs are particularly concerned about the potential impact of an energy-self-sufficient America on their interests. Despite Obama administration reassurances, they doubt whether the U.S. will be as reliable a provider of security if its energy dependence shrinks even while risks proliferate: nuclear-fueled Iranian expansionism, simultaneously growing Shiite and Sunni extremism, Egyptian democratic fragility and rising Israel-Palestinian violence.

The IEA projects that U.S. oil imports from the Mideast will decline to virtually nothing over the next decade, while China’s dependence expands rapidly. By 2035, some 90 percent of Mideast exports will land in Asia, the IEA projects. Over time, Beijing will question the wisdom of relying entirely on the U.S. to secure its energy shipping lanes from the Gulf, and U.S. taxpayers will question why they are paying for the Fifth Fleet to do the job. Energy interests have a tendency to redefine military alliances.

Yet the Chinese dimension goes further than that. China has shale gas reserves equal to or larger than those of the U.S., though they haven’t yet been exploited. Following an agreement reached by Obama on his first trip to China in November 2009, the U.S. is helping the Chinese in areas ranging from exploration to environmental protection. At the same time the China National Offshore Oil Corp. is purchasing Canada’s Nexen Inc. for $15.1 billion, an acquisition aimed at acquiring shale gas technology, and other Chinese companies are following suit.

The most immediate impact of the shale-gas bonanza has been on America itself. “Most important, it means that the many people who had written off the U.S. economy have made a big mistake,” says Birol. “The U.S. current account deficit is declining, there will be downward pressure on inflation and the dollar will strengthen.”

As Daniel Yergin wrote in the Financial Times, these new energy sources have created more than 1.7 million U.S. jobs, and by 2020 those numbers could grow to 3 million. New taxes and royalties could amount to more than $110 billion by that time, providing urgently needed resources for cash-strapped governments. At the same time, historically low U.S. natural gas prices, which are a third of those in Europe and Japan, are prompting billions of dollars of investments in U.S. advanced manufacturing – thus fueling a new export economy.

During the U.S. election campaign, Australian Foreign Minister Bob Carr famously said America “was one budget deal away from restoring its global preeminence.” Factor energy into that picture, and President Obama has all the makings for a historically successful second term.

11 comments

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Great article, with a horrid ring of truth about it.

Theres a ray of hope for those who see a future where the US swagger around Asia Pacific baiting China, in much the same way as the USSR did in Cuba;

This is that they bogged down with their buddy Israel in the snafu called the Middle East;

After all, Vietnam, Korea, Iraq, Afghanistan; all famous “victories” that prove that the US is a very slow learner when it comes to foreign policy.

Posted by Donquixote2u | Report as abusive

Why are we helping China in growing their abilities in fracking? I am less concerned about shipping jobs overseas (although that is a big concern) than shipping “know how” Our fracking know how is a real biggy. At the very least we should block any and all oil & gas technology transfers until they completely drop their absurd territorial claims in disputed areas.

Posted by QuietThinker | Report as abusive

USA a benevolent power? that is laughable and downright infuriating….

Posted by atrium | Report as abusive

the fracking is producing alot of gas but not so much oil and one serious accident and the boom could bust its a very high risk and pushes away better alternatives in solar/wind/geo and others that Are self-sustaining and renewable, I doubt seriously the USA will ever be independant of exporting oil and long term we will suffer having taken this high risk path

Posted by Anonymous | Report as abusive

Why are we helping China grow their abilities in fracking you ask?

We want to keep China from meddling in places like the Sudan and keep it busy at home getting its energy.

Posted by MrElectricus | Report as abusive

Just goes to show how dull the mind of Obama really is. This was happening under his nose during his presidency and all we got of him was wasted investments in solar boondoogles the fracking revolution was rendering obsolete.

Sheesh, talk about electing a stupid man!

Posted by sangell | Report as abusive

But if Sandy taught me anything it’s that A) one can’t rely on the corrupt businesses and 2) the environment is severely damaged.

The Electric Company can not be trusted to keep the lights on. From Con Edison to JCP&L to PSE&G to LIPA … corruption and big business are synonymous. National Grid is about as ROTTEN as unfettered capitalism gets.

You know what’s capitalism’s greatest enemy is? It isn’t socialism or communism or fascism, it’s capitalism. Capitalism’s greatest enemy is itself.

And the carbon problem will only increase with the continued use of fossil fuels.

Solution. Solar Panels on the house, with a battery backup to keep the appliance running when the sun goes down. Perhaps even a wind turbine in the back yard.

But more LIPA or Fracking? Not for me.

Posted by Foxdrake_360 | Report as abusive

I think we should take a deep breath before we get all euphoric about U.S. carbon-based energy supremacy because we may not be able to later.

Posted by PCScipio | Report as abusive

The surge in unconventional fossil fuels will surely be followed by a surge in greenhouse gas emissions. That much is clear, even if natural gas does burn a little cleaner.

But it’s equally clear that no other source of energy can supplant fossil, more than incrementally. Just the basic physics tells us that even doubling our electrical transmission capacity, at a cost of hundreds of billions and decades of construction, would still be a drop in the bucket of the energy carried by pipelines and tankers.

Further, while enormous populations in Asia are well on their way to middle-class incomes and energy consumption, the continent of Africa is just beginning.

Ironically, then, the fact that civilzation is on a crash course with its climate is no argument against unconventional fossil fuels. Trying to stop them would be an enormous and costly political distraction with no conceivable benefit.

We all need a much bigger solution.

maximillianwyse.wordpress.com

Posted by maximillianwyse | Report as abusive

Human “civilizations” have come and gone, quite frequently due to having destroyed the local life support system. But never in the planet’s history has a GLOBAL human civilization collapsed, and never with such severe environmental changes, never taking so many species with us. Nature will endure, but it will be a seriously different planet from the one that humans evolved and thrived in.
http://www.cambridge.org/gb/knowledge/is bn/item1138886/?site_locale=en_GB

But hey, it’s all good, the US will be a fossil fuel exporter again! Whoop, whoop!

Posted by Sanity-Monger | Report as abusive

This is the most important business news article I’ve read for years! THANK YOU.

Posted by matthewslyman | Report as abusive