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Page added on December 29, 2013
Daniel Yergin: The global impact of US shale
The emergence of shale gas and tight oil in the US demonstrates how innovation can change the balance of global economic and political power. Photo: Ty Wright/Bloomberg
The biggest innovation in energy so far 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 US, but also because of its profound global impact—as events in 2014 will continue to demonstrate.
America’s shale gas and tight oil are already changing global energy markets and reducing both Europe’s competitiveness vis-à-vis the US and China’s overall manufacturing competitiveness. They are also bringing shifts in global politics. Indeed, how shale energy may change America’s role in the Middle East is becoming a hot topic in Washington DC, 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% of total US natural-gas production. Given 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% since 2008—an increase that, in absolute terms, is larger than the total output of each of eight of the 12 Organization of the Petroleum Exporting Countries (Opec). 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 two 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 in the aftermath of 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.
Many other countries are reassessing their own 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.
The rise of US shale energy is also having a broader global economic impact: American shale gas is changing the balance of competitiveness in the world economy, giving the US an unanticipated advantage.
Indeed, inexpensive natural gas is fuelling a US manufacturing renaissance, as companies build new plants and expand existing facilities.
Throughout Europe, industrial leaders are becoming increasingly alarmed by enterprises’ loss of competitiveness to factories that use low-cost natural gas and the consequent shift of manufacturing from Europe to the US. This is particularly worrying in Germany, which relies on exports for half of its gross domestic product, and where energy costs remain on a stubbornly upward trajectory. These high costs mean that German industry will lose global market share.
Whatever their targets for shifting their energy mix, European Union countries, already suffering from high unemployment, will be forced to reconsider high-cost energy strategies or face weakening competitiveness and loss of jobs.
The geopolitical impact is already evident. For example, Iran is now seriously at the table in nuclear negotiations, which might well not have happened were it not for tight oil. When strict sanctions were imposed on Iranian oil exports, many feared that world oil prices would spike, and that the sanctions would ultimately fail, owing to insufficient alternative supply. But the increase in US oil production over the last two years has more than made up for the missing Iranian output, enabling the sanctions (bolstered by parallel financial measures) to work—impelling Iran to negotiate seriously, which it was unwilling to do only two years ago.
In Arab capitals, anxiety is mounting that a rapid increase in US tight-oil production will fuel wholesale US disengagement from the Middle East. But this overstates the extent to which direct oil imports shape US policy toward the region. To be sure, rising US output, combined with greater automotive fuel efficiency, will continue to reduce US oil imports. And, while the US will still import oil in the years ahead, more of it will come from Canada (notwithstanding the debate about the Keystone XL pipeline).
But the fact is that Middle East supply has not loomed very large in the overall US petroleum picture for some time. After all, even before the growth of tight oil, the Persian Gulf provided only about 10% of total US supply. It was not direct US oil imports from the Middle East, but rather oil’s importance to the global economy and world politics, that helped define US strategic interests.
The Middle East will continue to be an arena of great geopolitical importance, and its oil will be essential to the functioning of the global economy. This implies that the region will likely remain a central strategic interest for the US.
Overall, however, the shale-energy revolution does provide a new source of resilience for the US and enhances America’s position in the world. The emergence of shale gas and tight oil in the US demonstrates, once again, how innovation can change the balance of global economic and political power.
Daniel Yergin, vice-chairman of IHS, and the author of The Quest: Energy, Security, and the Remaking of the Modern World and The Prize: the Epic Quest for Oil, Money, and Power, for which he won the Pulitzer Prize.
20 Comments on "Daniel Yergin: The global impact of US shale"
Baldwincng on Sun, 29th Dec 2013 11:31 pm
The innovation in the US shale oil/gas industry is remarkable, we have huge reserves of oil and gas, no more Middle East wars, let’s leave coal in the ground, save our economies and the planet
Thanks America for working out how to do the combo of horizantal drilling and fracturing, you will help to make the world a better place.
Randall on Sun, 29th Dec 2013 11:39 pm
Yergin does not take into account that all burning of fossil fuels accelerates climate change, and alters the chemistry of the oceans, as so clearly explained in the video Ocean Apocalypse, found on this site.
kiwichick on Mon, 30th Dec 2013 12:10 am
crap
jmm on Mon, 30th Dec 2013 1:09 am
wa teen zelf verheerlijking…
fraking is een laatste nood greep…
oldfarmermac on Mon, 30th Dec 2013 1:52 am
Personally I believe the world is going to experience an oil supply crunch that will put the world economy on it’s knees, within the next ten years at the outside, if growth picks up.
I’m no expert of course.Mr. Yergin is, but what he doesn’t say is in my estimation far more important than what he does.
We need to keep in mind that he has a lot of skin in the game.His company is heavily invested in the status quo, and a man in a situation such as his is necessarily and invariably an optimist.Invariably!
He doesn’t say anything here about rising demand in the lesser developed parts of the world, and he doesn’t say anything about the fast declining production of all the old large oil fields that supply over ninety percent of the worlds oil.
Fracking has yet to result in more than enough new production than is needed to roughly balance off the decline in production from Alaska for instance.Where’s our next Alaska?
He doesn’t say anything about the extremely fast drop in production of oil from the horizontally drilled and fracked wells he speaks of here.
Most people who are paying close attention to the fracked oil boom seem to think that production in North Dakota will peak within the next five or six years.
I don’t know of anybody who has looked at the red queen problem who thinks North Dakota will be producing substantial amounts of oil for the next thirty or forty years the way Alaska has .. and will for a long time yet.
Nor does he say anything about why we here in the US should expect to continue to be supplied with cheap natural gas by the companies which own it once adequate facilities are in place to export it.
Asia has a humongous and growing stash of dollars. It’s going to be hard to tell the Chines we don’t want to sell them any natural gas but that we want to borrow some more money from them!
Maybe Uncle Sam will forbid the exportation of our gas.Maybe he won’t.
I also find it interesting that Mr Yergin mentions the fear of “many people” that the loss of Iranian production due to sanctions would result in a spike in oil prices.
This might be an inadvertent admission that the oil supply cushion, the spare capacity of the industry, actually was insufficient to make up the loss of supply from just this one producer,had it not been for the surge in US production.
And for what it’s worth- I think the Germans have their act together better than anybody else in the world in terms of pushing the growth of their renewable energy industries as hard as they can for what seems to me to be a fairly obvious reason.
I believe this reason is that they themselves believe that they are finished as a powerful and wealthy nation if they do not free themselves from the necessity of importing ever more expensive fossil fuels- fuels which could easily go from unaffordable to unavailable at any price on short notice or no notice at all in the event of a war or even just a political revolution in an exporting country.
I haven’t read Mr Yergin’s newer book, but I hope to sometime soon. I have read “The Prize” and I do want to say that it is an extraordinarily well written book, worthy of the Pulitzer Price twice over.
I have never learned more from a single book about any key industry , and I can’t remember enjoying any other book of the kind as much as I enjoyed “The Prize”.He’s a world class writer, no doubt about it.
But I still think he is way too optimistic.
GregT on Mon, 30th Dec 2013 2:46 am
Yup, crap.
stevefromvirginia on Mon, 30th Dec 2013 4:41 am
Yergin is a petroleum industry whore, he offers nothing more than broad generalization that added together = nothing.
Every car sold = more depletion, faster. Yergin never talks about that.
clifman on Mon, 30th Dec 2013 5:06 am
I concur with StevefromVirginia and OldFarmerMac, except that fracked oil from ND is likely to peak within 2-4 years, not 5-6. This is based on the work of such people paying close attention as Dennis Coyne (oilpeakclimate.blogspot.com), Ron Patterson (peakoilbarrel.com), Art Berman (petroleumtruthreport.com) and ‘WebHubbleTelescope'(contextearth.com)
Newfie on Mon, 30th Dec 2013 6:17 am
The number one whore of the oil patch has spoken…
Makati1 on Mon, 30th Dec 2013 11:59 am
Live Mint,(partnered with the Wall Street Journal, which is owned by Rupert Murdock, and is also partnered with the Virgin Group, owned by Richard Branson), is a news outlet in India ” …with an exclusive agreement with Wall Street Journal to publish Journal branded news and information in India. …”
Enough said.
rockman on Mon, 30th Dec 2013 12:40 pm
Howdy mac…been a coon’s age. Good to see ya!
But let’s be fair: the explosion of the shale oil plays have had a huge impact on global economies. Just a dozen years ago or so the world was spending about $870 BILLION/year for oil today. Today, thanks to the high prices that have led to the boom in tight oil production the world is spending about $2.7 TRILLION/year for oil. And in the US: oil consumers are paying about 300% more for their oil today after the record breaking increase in domestic oil production. And our oil balance of trade? And while we may be importing less bbls of oil the US is shipping more $’s to foreign countries for our oil imports then we were before the boom in shale production.
Yergin is absolutely correct about the huge impact of the dynamic that has brought about increased oil production in the US. One can’t deny the cold hard numbers. But one is certainly free to ignore them as Daniel does.
Bor on Mon, 30th Dec 2013 4:11 pm
Does fracking make impact? Of course, it does. Does fracking have any future? Of course, it does not. It will be forgotten soon enough.
rockman on Mon, 30th Dec 2013 5:33 pm
Frac’ng has had a future since it began 60 years ago. Frac’ng has been a very common technique for half a century. I did fracs 30 years ago whose volume exceeded many happening today. I don’t think frac’ng will be forgotten anytime soon. In fact, it will probably become more common as we continue to scrape the bottom of the barrel.
stevefromvirginia on Mon, 30th Dec 2013 6:42 pm
Rockman … OFM … Greetings!
rockman on Mon, 30th Dec 2013 7:32 pm
You just find our happy band of malcontents?
Pops on Mon, 30th Dec 2013 8:42 pm
“The emergence of shale gas and tight oil in the US demonstrates, once again, how innovation can change the balance of global economic and political power.”
That’s good, LOL, we’ve been exporting diesel to make up for the demise of the North Sea for going on 10 years now and LTO hasn’t made up for it yet. Basically Yergin’s paymasters keep him in cigars in order to push the idea that we’re becoming independent so the idea of repealing the crude export embargo becomes acceptable.
Of course increasing what we pay for our use and increasing, rather than reducing our “dependence on foreign oil”.
But hey, we get all that political power!
The other group of congenital optimists, the EIA, says US LTO peaks in a couple of years and plateaus for a few more before falling – yes you read that right! The EIA says LTO will fall in just a few years. I posted their chart here:
http://peakoil.com/forums/the-united-states-creeping-energy-revolution-t69038.html#p1174110
shortonoil on Mon, 30th Dec 2013 11:05 pm
[em]”Tight oil, produced with the same technology as shale gas, is boosting US oil production as well, with output up 56% since 2008—an increase that, in absolute terms, is larger than the total output of each of eight of the 12 Organization of the Petroleum Exporting Countries (Opec).”[/em]
Mr. Yergin, Wall Streets’ most talented applicator of pig lipstick has spoken again! We would be impressed by his numbers, if only, they were reasonably accurate. Unfortunately, they aren’t. What he calls oil is condensate; 70% of the Eagle Ford, and 30 – 50% of the Bakken. Field condensate comes out of the ground as a GAS, some of that GAS condenses into a liquid at atmospheric temperatures and pressures. They are hydrocarbons, yes – but so are pig farts. Master Blaster would be proud of you Mr. Yergin!
Then there is his claim that Shale will lead to American energy independence. Again, unfortunately, to do that would require that shale products act as an energy source. The entropy production of shale wells, which run at temperatures of 400 – 450 degrees, makes that impossible. The entropy production, as a result of their higher temperatures, is 17.5 times that of conventional crude. As an “energy source” shale production is a dead nag falling out of the gate.
So all and all, Mr. Yergin would be batting zero, if it weren’t for his keen eye for colors. He has long term job security. The world has a lot of pigs that could use some dressing up! Now that you have fallen completely flat on your face with the oil folks, Mr. Yergin – why don’t you try Victory’s Secrets?
stevefromvirginia on Tue, 31st Dec 2013 5:50 am
@Rockman;
“You just find our happy band of malcontents?”
Just recently. There have been rumors of you and OFM posting here and there across the web, post-Oil Drum.
Lucky Luck on Tue, 31st Dec 2013 8:45 pm
“And, while the US will still import oil in the years ahead, more of it will come from Canada (notwithstanding the debate about the Keystone XL pipeline).”
Of course, if not too many rail shipments derail and explode. But the fireworks show is magnificent!
LOL
Kenz300 on Thu, 2nd Jan 2014 1:49 am
Buy a bicycle or use mass transit……………
For longer distances use an electric, hybrid or biofuel vehicle.
The sooner we move to electric vehicles the better.