The shale boom and international energy security
By Ross McCracken in London
April 26, 2013 - The shale boom has major implications for US and other countries’ energy security, not least possible US disengagement from the Middle East.
However, the effects of US progress towards self-sufficiency may be overstated and the positive external impacts underrated.
Technological developments also suggest that Malthusian approaches to food, water and demography need re-assessment.
Until recently the principal vision of the future for the US, a country heavily dependent on crude oil imports and expecting a burgeoning dependency on imported LNG, was one of intense competition for natural resources with the emerging economies of Asia.
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Washington watched with concern China’s engagement in Africa and Latin America, as Beijing swapped loans and infrastructure investments for access to oil, gas and coal for its state companies.
China did so unconditionally: democratic or totalitarian, a country’s internal politics were its own affair. Its companies compete with full state backing against International Oil Companies reliant primarily on commercial terms.
This was a threat to the US, already precariously dependent on long, international supply chains, and expected to become more so. (See related chart: Crude import dependency).
The US would be exposed to geopolitical instability and competition around the globe.
To secure these supply chains, its role as policeman in the Middle East and elsewhere was vital.
That future has changed. The shale boom put paid to the prospect of LNG import dependency, to such an extent that the debate is now about whether the US should become an LNG exporter.
The country’s regasification capacity stands idle; steel and concrete monuments to the hazards of forecasting.
The fall in gas prices domestically saw a shift in drilling activity to liquids and the shale gale became a two-winged eagle of freedom, promising self-sufficiency not just in gas, but also in oil.
US crude imports are expected to fall, while demand will be static or contract.
Crucially, those imports that remain will come not from extended global supply chains, but from the United States’ neighbors, Canada and Mexico.
US self-sufficiency in oil is being defined as a reduction in non-North American crude imports rather than in terms of US output alone.
The argument runs that the US will no longer have the same interest in stability in the Middle East.
Security guarantees in the region would in effect be subsidizing Chinese and Indian energy security.
Both countries are forecast to have rapidly expanding import dependencies in both oil and gas, and with no market in the US, Middle Eastern oil increasingly flows east rather than west. Middle America will see little reason to support the energy security of other countries.
The Washington policy community sees it differently. First they are keen to redress the reductionist tendency among energy security specialists to see all foreign relations in terms of energy.
The US is not fighting in Afghanistan to secure access to oil and gas, but to contain the spread of anti-Western Islamic jihadism.
Its close relationship with Israel is not based on energy. Its alliances with Japan and South Korea are long-standing security guarantees based on mutual political and military objectives.
There is also the broader question of trade, which energy specialists present in terms of ‘virtual energy’.
When a US consumer unpatriotically buys a Toyota, s/he is importing gas from Qatar because the car was built using LNG imported by Japan from the Middle East.
Similarly, when a Japanese consumer buys a Dodge, s/he is benefitting from the shale gas boom in the US. This is just another way of saying that the US is part of the world economy.
In addition, the US has companies that are global in nature, with substantial investments in assets abroad and these represent US interests, regardless of the level of energy self-sufficiency.
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