Natural Gas Prices To Help US Economy, But Shifts Political Game

Low natural gas and oil prices will be a boost for US industry and the International Energy Agency (IEA) estimates that electricity prices will be about 50 percent cheaper in the United States than in Europe, largely because of a rise in the number of power plants fueled by cheap natural gas.

The IEA estimates the point at which the US will become self-sufficient in oil production to be 2030, when it could become a net oil exporter. However, long before that, exports could become the norm from some parts of the continent, while imports remain in others — the effect there will be to limit the downside to US oil prices relative to the rest of the world.

But what about the wider geopolitical ramifications?

There will be winners and losers all around as shale oil and gas supply increases. As the US becomes less dependent on the Middle East, will it continue to take such a close strategic interest in developments there?

The IEA predicted that global energy demand would grow between 35 and 46 percent from 2010 to 2035. Most of that growth will come from China, India and the Middle East, where the consuming classes are growing rapidly.

Oil cargoes currently flowing to the US will instead go to Asia, making the region’s political developments increasingly crucial to China and the rest. Subject to securing the massive investment needed, Iraq has the ability to become the second-largest exporter of oil after Russia, but will that be Western investment or Asian?

Nor will shale gas be the savior of greenhouse gas emissions, supporters of gas-fired power generation claim. As we have seen, US coal — if not consumed in the US — is exported to India and China and simply consumed there.

Meanwhile, production in some parts of the world, once seemingly secure and solid, are beginning to look less so.

An FT article details how Russia’s Gazprom has just commissioned the massive Bovanenkovo gas field far above the Arctic Circle. The field is said to contain enough gas to supply Europe’s needs for decades to come, yet questions are already being asked about its viability as the spot gas price falls.

By Stuart Burns