You would not have thought a couple of years ago that the United States would surpass Russia as the world’s leading natural gas producer and would become a top energy producer would you? I guess most of us did not see that coming. Beside clear economic advantages, with the growth of energy production the U.S. has gained a powerful geopolitical tool as well. This article aims to introduce the possible exploitation of these advantages which derive from the shale gas revolution.
How did the American shale gas revolution happen?
Five years ago it seemed that the United States will be another Western country which would be highly dependent on expensive imports as its conventional gas production declined. However, during this period, a great energy revolution has taken place in the world and the United States has become the largest beneficiary of this process. The main catalyst of this revolution was the recent developments in producing technologies which unlocked natural gas reservoirs. These resources have been known for long time but never been tapped since they were deemed once commercially infeasible. Two new techniques were introduced: horizontal drilling, which allows wells to penetrate bands of shale deep underground, and hydraulic fracturing, or fracking, which creates open fissures in underground shale-rock formation by injecting a high-pressure fluid to release gas from rock formations.
As a result, between 2007 and 2012, U.S. shale gas production increased by over 50% each year and its share of total gas production jumped from 5% to 39%. LNG terminals which were built to receive liquefied natural gas, they are being reconfigured to export. In a couple of years from a potential energy importer, the United States has become a leading energy superpower. Last year the U.S. overtook Russia as the largest natural gas producing country. Since the oil crises of the ‘70s, energy has been a liability for the country but now the situation seems to change. The shale gas revolution will not just boost U.S. economy but it can serve as a powerful and effective tool in the hand of the United States to pursue its interests.
The economic effects of the shale gas revolution in the U.S.
The biggest beneficiary of the North American energy boom will naturally be the United States. In the short term it will create thousands of new jobs. According to the estimation of McKinsey Global Institute, the shale revolution could boost the GDP of the U.S. by between two and four percent and could create 1.7 million new jobs. Moreover, the growth of energy export could decrease significantly the robust U.S. trade deficit.
In addition, having one of the cheapest gas resources in the world, the U.S. will have competitive advantages compared to its opponents. In Europe, natural gas costs three times as much as in the United States; in Japan, it’s more than four times as costly. The cheap natural gas can be a game changer and stimulate an estimated $350 billion of new investment in the United States in the next years. But the abundance of energy resources doesn’t mean that the USA will become totally independent of energy import. Since it will remain linked to the global energy markets, any drop in prices would cause a set-back in the newly started economic growth.
Shale Gas as a tool of diplomacy
The present shale gas revolution could be a powerful tool of the U.S. statecraft since many countries are eager to access to its gas resources. By using their competition, Washington can use it as leverage during the negotiations. The U.S. is currently negotiating two major multilateral trade deals: one is the Transatlantic Trade and Investment Partnership (TTIP) with the European Union and the other is Trans-Pacific Partnership (TPP) with 11 countries in the Asia-Pacific. The EU wants to reduce its dependence on Russian import gas and diversify its resources while the countries of Asia-Pacific are hungry for gas.
Seeing the large development in the American energy sector, many countries hopes to follow the steps of the USA and start to exploit their own unconventional gas resources. It is an opportunity for the U.S. to integrate the experience they have accumulated so far in the field of shale gas production into its diplomacy. It could help to broader alliances with countries which have the potential to produce shale gas by offering them advice and technical support. In this way, these countries could adopt particular policies which led to the shale gas revolution in the U.S.
The new gas resources would allow the United States to prevent its allies from having troubles with less friendly suppliers like Russia in Europe. These countries would have the chance to import directly from the U.S which would mean a more secure and more predictable energy supply. This would serve as a sign of solidarity thus it would improve largely the image of the United States.
Finally, the shale gas revolution has an important role in the fight against climate change as well. Natural gas emits 40% less carbon than coal and as result the U.S. has already met its climate goals. It can give a greater credibility in climate talks which would enhance U.S. leadership on climate change. This credibility should be used to force the countries which have been resistant to meet their climate goals. Although shifting from coal to gas would not solve the problems of climate change, but it would certainly buy us more time to develop new technologies and innovations with which the greenhouse gas emission could be reduced more dramatically.
Shale gas revolution has had a great influence on the United States which resulted in becoming a net energy exporter by 2020. The shift in global energy is a unique opportunity for the U.S. to boost its economy and to reduce its dependency on energy imports. It will give the USA a broader diplomatic freedom to pursue its interests in the world. Although in spite of the above mentioned advantages, the shale gas revolution will not solve the current problems and challenges of the U.S. such as the aftermath of the wars in Iraq and Afghanistan and the erosion of trust among its allies caused by the surveillance scandal. However, these advantages of the energy revolution with the current military, economic, and cultural strength of the country could enhance U.S. global leadership in the next decades.