The shale revolution’s impact abroad

Within the U.S., surging shale production wins support for igniting economic revival and unlocking indigenous supply; on the other hand, critics target hydraulic fracturing for such alleged offenses as endangering water supply, entrenching fossil fuel dependence, and generating ground tremors.

Yet unconventional U.S. energy production has much wider impact than this. In terms of global market share, shale development has propelled us into first place as the world’s largest natural gas producer. Ever larger amounts of American liquid natural gas (LNG) will be entering world markets in coming years.

Domestic oil production mirrors this trend. North Dakota’s Bakken formation, or Texas’ Eagle Ford field and other locations have changed the supply picture radically. U.S. daily production will soon eclipse that of Saudi Arabia, reducing our own and other countries’ external dependency, tempering world demand.

Constantly improving operational efficiencies plus better oversight are altering global shale economics. For example, a firm in Arkansas this year has cut the number of per-well drilling-to-production days, from 25 to just six. 

Here are just a few geopolitical impacts flowing from this supply and skillset revolution:

Bolstering Iran Sanctions. Without shale, slashing Iranian oil revenues would have been very difficult. But with American supply in the market, it’s a different story: Iran’s crude oil exports have fallen by about a half since UN sanctions began, with Iran losing $3-5 billion of revenue each month. Despite the ‘missing’ Iranian crude, added U.S. shale production has prevented sanctions forcing price spikes. 

Weakening Russian leverage. Ukrainian parliamentarians recently visited Western Pennsylvania to study shale exploration. Bulgaria, Lithuania, Poland, Romania as well as Ukraine all have large shale reserves. If developed, they will diminish Russian supply leverage; on several occasions, Gazprom has cut off gas flows to Eastern Europe, sometimes in the dead of winter.

Sharpening a North American Energy Edge.  American, Canadian and other western firms not only deliver new fuel flows but are also commercializing a wide spectrum of advantage, from new extractive technologies to the application of best practices, including environmental management. Engineering, metallurgical, and geological services have expanded, generating skilled graduates. Specialist expertise has grown apace; selling these services and intellectual property now has a big place in energy company balance sheets.
Economic and Political Rebalancing. In macro-economic terms, exporting fuels and services is adding balance to the U.S. merchandise account. The same trends are injecting macro political ‘balance’ as well. In Eastern Europe, ConocoPhillips, Chevron, and others have initialed various shale extraction deals. In Asia, Indonesia’s  PERTAMINA oil company recently signed a $7.8 billion contract for shale development while, in China, that country’s hideous coal-fired air pollution is forcing a shift to cleaner burning natural gas. Coupled with surging demand for oil, Chinese firms are investing billions in U.S. shale projects, for profit and to gain access to expertise. Recently, Petro China joined a production-sharing arrangement with Hess Corporation, aiming to develop shale oil in western Xinjiang.

Looking Ahead. The Made-in-USA shale revolution is rebalancing trade flows and ‘recalibrating’ the leverage that comes from oil & gas. American supply has altered world markets while American shale know-how has become a must-have in the global energy repertoire. Each week, the geologists and engineers roll out new extractive technologies. Each month, settled wisdom (about, say, the quantity of pressurized water needed for fracturing) alters and shifts. Make no mistake; a global shale revolution is coming, shepherded by U.S. producers and service firms having unmatched expertise and a decade’s jump in the technology.

Clad is an international political risk consultant and was U.S. deputy assistant secretary of defense for Asia Pacific Affairs from 2007-09.