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U.S. gas, oil revolution reshapes global energy trade

Game-changing fracking tech to turn U.S. into No. 1 oil producer by 2017, impacting markets worldwide

by Frederic Pouchot

AFP-JIJI

After unleashing an energy revolution in the United States, shale gas and oil are now becoming energy game changers worldwide, a break with the past whose ramifications are still unclear.

Thanks to the advent of hydraulic fracturing technology — used to extract oil and gas locked in sedimentary shale rock — the United States is on track to become the world’s No. 1 oil producer by 2017 and a net exporter by 2030, according to the International Energy Agency (IEA).

Besides radically changing the U.S. energy landscape, this revolution in fracking, as the process is known, is also reshaping markets overseas. Thanks to the sudden abundance of cheap natural gas, American electricity suppliers are shunning domestic coal — leading producers to export it at low prices to Europe and Asia.

That trend has revived the appeal of coal-fired power plants in Europe and taken a toll on plans to transition toward gas-burning power stations, despite the air pollution concerns surrounding coal.

Energy experts say the U.S. will also likely begin exporting liquefied natural gas to Europe and Asia in the next several years. U.S. authorities have already green-lighted four LNG export terminals.

“We anticipate that from around 2016, we are really going to see volumes of LNG coming out of the United States and they are going to change the way that markets connect over the coming decades,” IEA analyst Tim Gould said at a recent conference.

“The United States won’t export a huge amount of gas because they’ll be looking to keep domestic price levels as low as possible, but eventually there will undoubtedly be more than 10 export terminals geared toward Europe and Asia,” said Jerome Ferrier, head of the International Gas Union.

With all its new nonconventional output, the U.S. is now producing over 7 million barrels of oil per day, returning to the level of 25 years ago, said Olivier Appert, head of the French institute for oil and new energies, IFPEN.

“The fact that the United States is set to become the top oil producer by 2020, ahead of Saudi Arabia, changes everything,” said Appert.

While the size and longevity of the American boom are up for debate, it will redraw the world energy trade map at least temporarily by making North America less dependent on Middle Eastern oil.

China is on track to take the United States’ place as the world’s top oil importer in 2017, with its bill soaring to $500 billion in 2020, the Wood Mackenzie consultancy calculated in August. The United States’ bill for oil imports is meanwhile set to fall from a peak of $335 billion in 2008 to $160 billion in 2020.

At first, the world’s top crude producers, Saudi Arabia and Russia, considered the fracking boom “a speculative bubble that was about to burst,” said Appert.

“But today it’s becoming a major problem for them,” to the point that the Organization of Petroleum Exporting Countries launched a study on the issue in June, he added.

Keen to emulate the American boom, more than a dozen other countries around the world are exploring for shale hydrocarbons or moving in that direction.

But environmental fears around fracking — in which a high-pressure mix of water, sand and chemicals is blasted underground to release hydrocarbons trapped between layers of rock — may stop other countries from embracing the shale revolution with the same fervor as the U.S.

Energy-hungry China has the world’s largest shale gas reserves, according to preliminary estimates, but recently began exploratory drilling returned disappointing initial results.

However, “the energy challenges in China are such that the country needs every exploitable resource, and if there’s shale gas there, it will probably be tapped,” said Ferrier. “The problem will be finding the water for fracking.”

Europe also faces tricky questions on shale gas. The continent depends heavily on Russian supplies, with North Sea deposits quickly running out. The European Union has so far failed to adopt a unified gas strategy, but policymakers consider the issue strategically vital.

EU Energy Commissioner Guenther Oettinger said in May that shale gas could be a good bargaining chip in reaching new deals with Russian energy giant Gazprom. “I am sure (that) to have some shale gas option is a good instrument for our long-term negotiations (with) Gazprom and Russia,” he said.

  • Steven R. Simon

    Simon says that the GOJ should assist Japanese electric utilities to contract with US natural gas producers for long term LNG supplies.