Dunn and McClelland, 13 – Professor of International Politics and Head of the Department of Political Science and International Studies at the University of Birmingham AND Associate Director for North America at the risk analytics consultancy Maplecroft in charge of energy policy (David and Mark, “Shale gas and the revival of American power: debunking decline?,” The Royal Institute of International Affairs, http://onlinelibrary.wiley.com/doi/10.1111/1468-2346.12081/abstract)//eek
Shale gas, oil and American power In his 2011 International Affairs article, ‘The art of declining politely’, Quinn argues the case for America’s relative decline, suggesting that President Obama’s cautious approach to foreign policy is appropriate for America’s current position. Yet Quinn leaves the following caveat: ‘For the United States, avoiding relative decline over the coming decades will require the discovery of some as yet unknown propulsive engine for revitalizing its own economic growth or some grave breakdown disproportionately afflicting the rising powers.’29 Fortunately for the United States’ prospects of retaining its pre-eminence in international politics, there are indications that such a ‘propulsive engine’ is emerging. After years of dwindling reserves, the US oil and gas industry is in the embryonic stages of a dramatic reversal of fortunes. Vast deposits of shale gas and oil, previously either undiscovered or considered not technically recoverable—a view that prevailed as little as five years ago—have begun to be exploited. These shale ‘plays’ suggest the prospect of a complete transformation of the US energy industry, serving to aid the revival of America’s industrial base, and even offering the potential for energy self-sufficiency. Such an eventuality could have important geopolitical implications, not simply bolstering American power, but somewhat weakening the relative power of OPEC and exporters of conventional natural gas such as Russia. This is not to argue that such an outcome is guaranteed; environmental concerns and scepticism about the extent of US shale reserves could yet derail such an outcome. The implications for global politics, however, if the more optimistic predictions of US shale gas and oil reserves are fully realized, have not been fully factored into narratives of American decline; and indeed, they offer a different future for the United States in its attempt to retain hegemony. Vast formations of shale rock are located underground throughout large parts of the lower states of the US, including New York, Pennsylvania, Ohio, West Virginia, Texas and North Dakota. Although it has long been known that signifi- cant oil and gas deposits exist here, the low pressure of the reservoirs and the low levels of permeability and porosity of the rock meant that these reserves were not deemed technically or commercially recoverable. Many such areas, for example the Barnett shale play in Texas, were not even on energy forecast maps in the late 1990s.30 Technological innovation, however, particularly in the form of horizontal drilling and hydraulic fracturing (fracking), has brought about a rapid reassessment of America’s energy reserves. Fracking involves water, sand and chemical fluids being injected underground at pressure to fracture the shale and release gas and oil from the rock. Large amounts of shale gas and accompanying tight oil trapped in the shale could now assist in the transformation of the material base of America’s power.31 The reassessment of America’s shale gas reserves has been rapid and dramatic. A Baker Institute–Rice University study provides a helpful timeline of the changing estimates of US shale gas reserves over the past decade.32 In 2003, a National Petroleum Council study estimated technically recoverable US reserves at 38 trillion cubic feet (tcf ). In 2005, the US Energy Information Administration (EIA), part of the Department of Energy, lifted the estimate to 140 tcf, which it further raised to a range of 380–900 tcf (a mean of 640 tcf ) in 2008. In 2009, the Potential Gas Committee estimated US shale gas at 680 tcf, and by 2011 Advanced Resources International had raised the bar yet again, stating US shale gas reserves at 860 tcf, and a colossal 1,930 tcf in North America as a whole. Russia, the location of the world’s largest conventional gas reserves, is estimated to have a total conven- tional deposit of approximately 1,700 tcf.33 A 2013 study by the US EIA concluded that 7,299 tcf of shale gas existed worldwide—in the United States and 41 other countries combined—raising estimated global natural gas reserves by 47 per cent from the global total of 15,583 tcf of conventional gas.34 The impact of shale gas is likely to have a disproportionately positive impact on the United States as it is particularly well positioned to exploit shale gas effectively, compared to its competitors. It is not simply estimates of shale gas reserves that have been rising in the United States; production has been increasing rapidly too. In 2006, just 1 tcf of shale gas was produced in the United States; by 2010 the figure had increased almost fivefold to 4.8 tcf.35 Estimates suggest this new total will have more than quadrupled by 2040, and that as early as the 2030s shale gas, produced in negligible amounts at the start of the millennium, will represent over 50 per cent of US natural gas production. The production of tight oil in shale plays in the United States has also increased dramatically. The EIA estimates that reserves of 58 billion barrels of technically recoverable shale oil exist in the US, over twice as much as its 2011 assessment. In 2000 the United States produced 200,000 barrels of tight oil a day; in 2011 it produced five times as much, 1 million barrels. Some estimates now suggest that by 2017 tight oil production will have risen fivefold again to 5 million barrels a day. Estimates of US tight oil reserves lag somewhat behind shale gas assessments; however, if production increases at similar rates as in shale gas, the results could be even more significant. Leonardo mgeri argues that once increases in tight oil and biofuel operations are factored in, the United States could overtake Saudi Arabia as the world’s leading producer of oil as early as 2017. It is no small irony that realists, whose IR paradigms stress the importance of the material basis of power, have been found at the forefront of those arguing for America’s relative decline, often overlooking important changes in the material base of US power that pose a significant challenge to the heart of the declinist case. By contrast John Deutch, professor of chemistry at MIT and former director of the CIA, argues that the discovery of shale gas has given rise to ‘perhaps the greatest shift in energy-reserve estimates in the last half century’. The rapid turnaround in the fortunes of the US oil and gas industry has a range of domestic and foreign implications, some of which are likely to help entrench American power, others of which may weaken the economic base of states that are often seen as hostile to US interests. The domestic economic benefits to the United States of shale gas are already large, even in the current embryonic phase of the industry. There are both direct and indirect effects of the recent explosion in shale gas exploitation. Most obviously, it will result in the United States not requiring imported lique- fied natural gas (LNG) to meet domestic demand, and is likely to result in the US becoming an exporter of LNG in the medium term. Indeed, the Obama adminis- tration has already approved four LNG export projects, and terminals designed to process LNG imports are now being fundamentally overhauled to enable exports. The price of natural gas in the US has plummeted, with clear benefits for domestic and industrial consumers. The pricing point of natural gas—known in the US as the Henry Hub price—is already less than a third of what it was in 2008. A study of the long-term domestic implications of shale gas production indicates that by 2035 the average American household will have $2,000 more disposable income per year solely as a result of reduced gas costs for themselves and the companies from which they purchase products. Indeed, the price of natural gas has dropped so low that it has created difficulties for some energy companies which have had to write down the value of their shale gas assets and focus attention in the short term on higher-margin natural gas liquids and tight oil. In addition to the basic fact of a greater retention of economic wealth from not having to import natural gas, there are a number of indirect benefits to shale gas exploitation. Industrial and manufacturing companies in particular, with high electricity usage, are likely to benefit from lower energy costs. Low-cost shale gas is also increasingly being used as a feedstock for chemical companies—partly explaining the opposition that has come from this sector towards future LNG exports, which could raise the domestic price of natural gas. Thus, in addition to the hundreds of thousands of jobs created directly in the oil and gas industry, employment gains in the chemicals, manufacturing and wider industrial sectors are also likely to result from cheaper gas and electricity. One study reported that, even while still in the earliest stages of growth, shale gas has already created over 600,000 jobs in the United States, and projects a further rise to a total of 870,000 new jobs by 2015, directly contributing $118.2 billion to US GDP. Even ignoring the numerous other economic and strategic benefits, the basic tax return in terms of royalties from shale gas production is estimated to be worth just under $1 trillion over the next 25 years.44 Despite other environmental concerns discussed later, compared with its fossil fuel competitors, shale gas exploitation is considered to produce smaller quantities of harmful greenhouse gases than either coal or oil.45 America’s reliance on the burning of coal to generate electricity has, up to now, been a large impediment to its full embrace of measures to inhibit climate change. Natural gas, in contrast to coal, is widely considered to be a bridge to a more nearly carbon-free future that cannot yet be realized economically.46 Although a carbon-free future is still out of reach, shale gas offers a cleaner road towards that goal than burning a conventional fossil fuel such as coal. The environmental benefits of shale gas could go beyond simply replacing coal in electricity production. The low price of gas is likely to incentivize and expedite the development of technological change, especially in transport. Deutch argues that, as shale gas production increases in the United States and worldwide, the price of gas may come increasingly to be set internationally rather than remain subject to local variation. However, such an outcome would have to overcome significant transport costs, given that LNG is much more costly to transport than crude oil. A consequence of increased natural gas production in the United States, and eventually elsewhere, could be a significant drop in revenue—and an accompa- nying loss of geopolitical power—for current conventional oil and gas exporters. Fortunately for the future of US power, it is these states in particular that have been most geopolitically problematic for America. Shale gas offers policy- makers in Washington the prospect of a long-term reduction in revenue for OPEC and for the two states with the world’s leading conventional gas reserves: Russia and Iran. OPEC will increasingly have to look to Asian markets in an attempt to replace a significant drop in demand from North America. The Baker Insti- tute–Rice University investigation into the geopolitical consequences of shale gas is illuminating. Russia’s share of the natural gas market in Europe is likely to fall to 13 per cent by 2040 from 27 per cent in 2009 as a result of shale gas production, which will also significantly reduce the ability of the Iranian regime to engage in energy diplomacy. The shale revolution in the United States could also reduce oil exports from Venezuela and thus limit America’s oil dependence on Latin America. The upshot of this is that the United States will play a more important role in determining global energy supplies and prices than it does at present. Europe, for example, currently beholden to the demands of Russian policy-makers, would need to pay much closer attention to the United States and look westwards for natural gas imports. Even if direct LNG exports to Europe from the US turn out to be relatively low, falling US demand for Russian natural gas could lower its price on European markets. Currently, the US is dependent on international stability for its energy needs at a time when the security of that supply is often in doubt and the increase in the price of oil is damaging to both the US and the global economy. Control of oil prices and supply in particular has fluctuated considerably in the twelve years since the 9/11 terrorist attacks on the United States. In 2001, the price of a barrel of crude oil was $28; by mid-2013 it was fluctuating just over $100 a barrel. The massive increases in the price of oil throughout this period have contributed in a significant way to America’s economic woes. As Robert Zubrin argues, the increase in oil prices has acted like a massive tax increase on the American economy: Oil prices have risen ... 900 percent in the past twelve years. In 1999, Americans paid $90 billion for all their oil, less than 5 percent of what they paid in federal taxes. At current prices of $108 per barrel, Americans this year will pay over $800 billion for oil, an amount equal to 33 percent of all federal tax . . . leaving us paying more for oil than we pay to the federal government.52 The effects of these increases were felt through an increase in unemployment in the late 2000s which in turn led to mortgage defaults, destroying the value of the mortgage-backed securities held by America’s banks. The resulting bailout of the banks by the government to avoid a general collapse of the financial system landed American taxpayers with an additional bill of $800 billion. The economic downturn resulting from the ‘credit crunch’ is as infamous as it has been enduring. In addition, the period since 2011 has witnessed disruption to energy supplies owing to unrest in Tunisia, Egypt, Libya and Syria, keeping prices high despite the reduction in global demand caused by the recession, and the continuing effects of oil sanctions on Iran. Such developments create strong incentives for greater development of domestic shale as a safe, stable, cheap energy source, and could spur technological innovation to resort increasingly to natural gas instead of crude oil in some transport functions in the medium to long term.