16 November 2012

Geopolitics: As the North American Shale Revolution Unfolds

Every modern industrial nation requires affordable energy to run its industry, commerce, and to keep its citizens comfortable within their homes. For the last few decades, energy consumers in the western world have lived under the threat of having their energy supplies cut off, by belligerent suppliers in OPEC, Russia, and other bullying dictatorships.
Preliminary Map of Global Shale Gas -- Much More to Come

With the coming of new energy technologies that are unlocking vast supplies of previously inaccessible oil & gas, Russia's and OPEC's stranglehold over more civilised and cultured parts of the world appears to be weakening.
The Gulf is not the only area where the established oil powers are in danger of crumbling. The biggest single loser of all will most likely be Vladimir Putin's Russia, a regime largely dependent on high energy prices and a captive market with no real alternative plan.

..."Russia has just seen its aspiration market disappear. The US is already a bigger gas producer than Russia," Redman said. _Guardian
As US energy production continues to shift away from OPEC toward domestic producers, US industries can once again plan their production schedules based upon a more reliable energy supply. So that as US and Canadian industries re-build based upon more reliable and cheaper supplies of fuels and energy, other countries that depend upon more expensive and less reliable forms of energy -- such as Germany -- will increasingly lose out to North America.
Thanks to new applications of drilling technology to unlock natural gas trapped in shale rock, the nation’s output has surged and energy experts almost unanimously forecast that prices will remain low or moderate for a generation.

...“It has become clear to me that the responsible development of our nation’s extensive recoverable oil and natural gas resources has the potential to be the once-in-a-lifetime economic engine that coal was nearly 200 years ago,” U.S. Steel Chairman John Surma said in a speech this year.

Industrial companies are betting that the surge in the domestic production of natural gas is much more than a blip. Cheap and plentiful supplies of natural gas are flooding the U.S. market, and prices in the United States are as low as a quarter of what they are in Europe or Asia.

“For the foreseeable future, thanks to the recovery of vast U.S. underground gas deposits of shale, natural gas is likely to remain 50 to 70 percent cheaper in the U.S. than in Europe and Japan,” said a recent report by the Boston Consulting Group. _WaPo
Whether these new technologies ultimately create a new "economic renaissance" depends upon whether government agencies are able to keep their corrupt and ideology-stained paws off the private enterprise boom.

A sudden surplus of previously rare high quality energy is likely to have unforeseen effects on several parts of the world.
"In the past, when OPEC was cutting production by half a million barrels, everyone was jumping up and down. Today no one cares as we have a real surplus of oil," said the head of Azeri state oil firm Socar's trading arm, Valery Golovushkin.

"There is already plenty of oil in the Mediterranean. We at Socar are relying on long-term supply contract to Asia. But quite honestly we don't feel any particular joy from taking it to Asia and wasting money on freight," said Golovushkin, a veteran of the Soviet oil export industry. _Reuters
The North American shale boom caught a lot of global oil market suppliers flat-footed.

As North American shale oil & gas continues to rise in production -- and as other shale producers in Europe, Asia, South America, Australia, and elsewhere come on line -- the problems for OPEC and Russia will only be compounded further.

It is likely that a number of regional wars will be fought over oil resources, as individual oil dictatorships find that their own production is not able to pay for their ambitions and their need to pacify their people. Many of these wars will be supported and encouraged by Russia -- in an attempt to ramp up the risk premium for oil, and overall oil & gas prices.

The consequences of these rapid shifts in new oil & gas supplies have only begun to shake out. Watch carefully, and be very cautious.


Brian Wang has followed the ramp up of North American hydrocarbon production very closely

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