How Big A Game-Changer For US Energy Policy?

Some people herald it as the start of a new dawn, and others condemn it as a potential environmental disaster.

I am talking of course about shale gas and shale oil, produced by hydraulic fracturing — known by its shorthand as “fracking.” With every new technology there are winners and losers, benefits and costs.

But hydrocarbons from shale deposits are shaping up to cause as big a stir to the energy markets as nuclear power did back in the seventies. Maybe more so, as oil and gas are consumed across a wider range of applications than just the electricity produced by nuclear.

This isn’t the place to delve into the environmental implications — there are dozens of sources that lay out their stall in rightly protecting the environment — but it should be said that the biggest threat to the future of shale resources will be environmental.

If widespread contamination of ground water, for example, began to be linked to fracking, the industry could yet be stopped in its tracks. So far (although there have undoubtedly been instances), cases of contamination have been sufficiently isolated that the industry still has full government approval, fueled by excitement of what the future could hold.

As the NY Times writes, an International Energy Agency (IEA) report this week leads with the headline grabber, “The United States will overtake Saudi Arabia as the world’s leading oil producer by about 2017 and will become a net oil exporter by 2030.”

Even this may be too pessimistic a prediction — the Telegraph newspaper states that total US liquid production is set to hit 11.4 million barrels per day (bpd) next year, close to Saudi Arabia’s current 11.6 million. Saudi production is itself running at a record level to depress world prices in an Iran-sensitive market; if not for that, Saudi production would be barely more than 10 million bpd.

Shale gas may have been eclipsed by shale oil in the affections of the exploration companies, but already US natural gas resources are put at over 1,300 trillion cubic feet — the bulk of which is shale gas — edging ahead of Russia’s near-1,200 trillion cubic feet of gas.

The arrival of US shale oil (and, it must be said, Canadian supplies of unconventional oil), have depressed US oil prices relative to the rest of the world, pushing the West Texas Intermediate benchmark to a discount of a fifth to Brent, the international benchmark. As a result, big chunks of the US are getting oil on the cheap, improving US competitiveness relative to the rest of the world.

By Stuart Burns