Opinion / Op-Ed Contributors

The global impact of US shale

By Daniel Yergin (China Daily) Updated: 2014-02-12 08:05

The biggest innovation in energy this century has been the development of shale gas and the associated resource known as "tight oil". Shale energy ranks at the top not only because of its abundance in the United States, but also because of its profound global impact - as events in 2014 will continue to demonstrate.

The US' shale gas and tight oil are already changing global energy markets and reducing both Europe's competitiveness vis-a-vis the US and China's overall manufacturing competitiveness. They are also bringing shifts in global politics. Indeed, how shale energy may change the US' role in the Middle East is becoming a hot topic in Washington and in the Middle East itself.

This "unconventional revolution" in oil and gas did not come quickly. Hydraulic fracturing - known as "fracking" - has been around since 1947, and initial efforts to adapt it to dense shale began in Texas in the early 1980s. But it was not until the late 1990s and early 2000s that the specific type of fracturing for shale, combined with horizontal drilling, was perfected. And it was not until 2008 that its impact on the US energy supply became notable.

Since then, the industry has developed fast, with shale gas currently accounting for 44 percent of total US natural gas production. Given the abundant supply, US gas prices have fallen to a third of those in Europe, while Asia pays five times as much. Tight oil, produced with the same technology as shale gas, is boosting US oil production as well, with output up 56 percent since 2008 - an increase that, in absolute terms, is larger than the total output of each of eight of the 12 members of the Organization of Petroleum Exporting Countries. Indeed, the International Energy Agency predicts that in the next few years the US will overtake Saudi Arabia and Russia to become the world's largest oil producer.

Five years ago, it was expected that the US would be importing large volumes of liquefied natural gas (LNG) to make up for an anticipated shortfall in domestic production. Now the US is not importing any LNG - thereby saving $100 billion on its annual import bill. At current prices, the increase in US oil production has been cutting another $100 billion from that bill. In addition, the unconventional revolution supports over 2 million jobs.

The global impact has been enormous. Much of the new global LNG capacity was developed with the US in mind. Now, with the US market cordoned off by cheap domestic gas, some of that LNG is going to Europe, introducing unexpected competition for traditional suppliers Russia and Norway.

For Japan, the lack of US demand for LNG proved fortunate after the disaster at the Fukushima Daiichi nuclear-power plant in 2011. Much of that LNG could go to Japan to generate electricity, replacing the electricity lost from the total shutdown of nuclear power plants.

Many other countries are reassessing their energy policies in light of the unconventional energy revolution. China, seeing the speed and extent of US shale gas development, has placed a high priority on developing its extensive unconventional gas resources. For China, replacing coal with natural gas in electricity generation is essential to mitigate public discontent and health problems stemming from the heavy burden of urban air pollution.

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