Feature Report: The Geopolitics of Oil and Gas

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The U.S. Shale Oil and Gas Revolution

The shale oil and gas revolution that began in 2007 in the United States has profoundly altered the world energy landscape and could have a lasting impact on global geopolitics.

The development of shale gas in the United States has profoundly altered the world energy landscape. © GONZALEZ THIERRY - TOTAL

The United States has been producing shale gasShale gas is found in deeply buried clayey sedimentary rock that is both the source rock and the reservoir for the gas... since 2007 and extracting an increasing amount of shale oilRefers to liquid hydrocarbons extracted from oil shale (see definition) by heating, pyrolysis or hydrogenation. since 2010, considerably boosting its oil and gas output. In fact, converging statistics indicate that in the summer of 2014, the U.S. overtook both Saudi Arabia and Russia to become the leading producer of crude oilOil that has not been refined. and natural gas1.

Despite opposition to fracturing techniques and frequently voiced doubts as to long-term viability, the U.S. looks set to continue down this road and achieve energy independenceThe ability of a country or region to meet all its energy needs without having to import primary or final energy. within 20 years. In the last ten years the country has halved its overall energy dependence rate, which is an important factor in Washington's strategic planning. U.S. dependence on natural gas has fallen from 18% of consumption to just 4%, or virtual self-sufficiency, and the country has started building gas liquefactionConversion of a gas to a liquid. In industrial applications, gas is liquefied by cooling and/or pressurization... facilities so it can begin exporting. In terms of crude oil, U.S. production long matched consumption until the 1970s, when the country became increasingly dependent on imports. Reliance on outside sources rose to two thirds of consumption in 2005, but fell back to 38% in 2014.

This unconventional oilOil that cannot be extracted using current technology or that entails additional technology or costs to produce... and gas "revolution" has already had a number of impacts.

2035: The year the U.S. is expected to become energy independent

Impacts in the U.S. and on gas markets

The influx of natural gas has led to a reduction in the use of coalCoal is ranked by its degree of transformation or maturity, increasing in carbon content from... in U.S. electricityForm of energy resulting from the movement of charged particles (electrons) through a conductor... production, which has pushed bituminous coal producers to increase exports outside the U.S., notably to Europe, with Washington's blessing. Cheap gas has also attracted many energy-intensiveDescribes a building, mode of transportation or industrial process that uses large amounts of energy. industries to U.S. soil, creating jobs and giving sectors such as refining and petrochemicals a major competitive advantage over their counterparts in Europe and Japan.

Another consequence of the shale gas boom has been lower gas prices on the North American market and, as a result, greater disparities with the other two major regional markets, Europe and Asia. Gas, unlike oil, is not a global market because of the difficulties involved in transporting it either by land via pipelines or by sea in liquefied natural gas (LNG)LNG is composed almost entirely of methane. Liquefying the gas reduces its initial volume by a factor of around 600... tankers – a solution that requires costly liquefaction and regasification. As a result, natural gas sells for two-to-three times more in the European and Asian markets than it does in the U.S., despite a collapse in demand in Asia in late 2014. 

Oil is a global market, while natural gas is traded in three separate regions (North America, Europe and Asia).

Impacts on Oil Markets

The tumble in U.S. gas prices has not dampened shale's appeal. This is because the focus of production has shifted to the liquids associated with the gas – shale and tight oil. With the rise in crude prices, these oils were extremely profitable through to the summer of 2014.

Initially, major oil and gas producers such as Russia and the Gulf states paid little heed to rising U.S. output. They reasoned that the cost of extracting the unconventional preservation (hydrocarbons)The final phase in petroleum system formation, after a deposit has accumulated... would quickly outweigh the benefits. But, as technology always advances in step with new techniques, the cost was soon comparable to that of offshoreRefers to sea-based oil exploration and production operations, as in "offshore license" or "offshore drilling". or hard-to-access oil production. 

In the summer of 2014, Saudi Arabia changed its analysis. Hoping to defend its market share, Riyadh pushed through an organization of the petroleum exporting countries (opec) Created in 1960, OPEC currently has 12 members: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia... decision to maintain output in order to drive down prices, arguing that the low price of oil would eventually make unconventional resources too expensive to produce.

After plunging from more than $100 a barrelUnit of volume measurement for crude oil that is equivalent to approximately 159 liters (0.159 cubic meters)... in 2012-2014 to roughly $60 in mid-2015, the price of BrentBrent is the name given to a relatively light crude oil made from a blend of crudes from 19 oil fields in the North Sea... crude dipped below $30 dollars in January 2016 for the first time since 2003.

While the price rout is making it increasingly difficult for U.S. shale oil producers to remain profitable, it is also causing Saudi Arabia's budget deficit to widen, which could lead to political instability. Lower oil prices are a welcome boost for oil-consuming countries, which benefit from smaller energy bills, but they are a serious blow to oil-producing nations like Venezuela, Algeria and Nigeria, whose economies rely mostly on oil and gas revenue. 

 

Source :

(1) BP statistics