EIA Says Worldwide Shale Oil And Gas Potential Is Huge

A surge in oil and gas production from shale rock has transformed energy in the United States, helping reverse declines in oil production and prompting a massive shift from coal to natural gas electricity production that has led to a significant drop in carbon dioxide emissions (since burning coal releases more carbon dioxide than burning natural gas). A new report from the U.S. Energy Information Administration lends support to the idea that a similar transformation could take place outside the United States. 

A map from a new Energy Information Administration report on shale oil and gas resources.

The map above gives a sense of just how widespread oil and gas resources are. The EIA report concludes that Russia has even more technically recoverable shale oil than the United States. Three countries have more shale gas—China, Argentina, and Algeria. Geologists have long known that some shale deposits contain large amounts of oil and gas, but it’s only recently that hydraulic fracturing and horizontal drilling technology have made it feasible to extract.

While other countries may have more of these resources than the United States, the impact in some of them may not be as great, or happen as quickly. It could take many years to develop resources in other countries because the geology is somewhat different—the techniques that work in the United States might not quite work elsewhere. What’s more, many countries don’t have the needed technological expertise. Some countries make it difficult for companies to set up and find ways to exploit the resources (see “China Has Plenty of Shale Gas, But It Will Be Hard to Mine”).

What’s more, the United States had a lot of spare natural gas generating capacity, which made it easy to switch from coal to natural gas. In a place like China, where energy demand is quickly growing, there’s little spare capacity. Natural gas production might only serve to slightly slow the growth of electricity from coal plants, not reverse it.

So far, the impact of increased shale gas production has been limited outside the United States. Because natural gas is relatively expensive to export and requires the construction of specialized infrastructure, prices for natural gas have fallen sharply inside the United States, but not outside the country.

But it has had one impact: increased natural gas production in the U.S. has led to increases in coal consumption elsewhere. Unlike natural gas, coal is relatively easy to export. When demand for it dropped in the U.S., it was shipped abroad, lowering coal prices and contributing to an increase in coal use—and carbon dioxide emissions. 

The repercussions of a shale revolution on oil-exporting nations

In sweeping terms, the economic model of countries in North Africa, parts of West Africa and the Middle East comes down to this: Trading hydrocarbons for carbohydrates.

The oil-out, wheat-in formula has worked rather well for decades, the odd land war and revolution notwithstanding. Egypt is the world’s biggest single buyer of imported wheat. Saudi Arabia is giving up on its gruesomely expensive experiment to grow wheat in the desert; it is happy to swap oil for much of its food consumption. Ditto Nigeria, whose population is exploding and which produces almost no wheat itself.

And then came the shale revolution.

Shale oil and gas production in the United States is soaring and American oil imports are falling fast. Oil and gas prices are down and the forecasts are bearish, a remarkable turnaround from 2007 and 2008, when $200 (U.S.) a barrel oil seemed somewhere between possible and likely (the benchmark Brent price is now about $104). The shale revolution is about to hit Britain and other parts of Europe.

What is good for the United States and Europe – less imported oil and gas and lower prices for both – is bad news for some of the one-product wonders in Africa, the Middle East and Latin America. The power-and-income shift away from the traditional energy exporters to gluttonous energy consumers could trigger potentially dire economic and social consequences in the exporting countries, especially the ones with undiversified economies. The world saw what plummeting personal incomes and national wealth did to Greece. The same, or worse, could occur in the developing world’s oil-pumping economies.

For Americans, the shale revolution is the most thrilling news since the invention of the propane barbecue, in spite of legitimate concerns about groundwater contamination from “fracking” – the hydraulic cracking of shale-rock formations to release hydrocarbons – and methane release from wells. The shale drilling and production has created vast numbers of jobs, turned struggling states, like North Dakota, into mini Saudi Arabias and attracted industries, like chemical and fertilizer producers, that require cheap hydrocarbons to thrive.

Most of all, it has drastically cut the American oil import bill. Thanks to the shale-drilling bonanza, U.S. crude oil production grew by more than one million barrels a day – equivalent to 14 per cent of output – in 2012, the biggest increase ever, according to the latest edition of BP’s Statistical Review of World Energy, published this week.

Surging oil and gas production has allowed the United States to reduce oil imports to 7.5 million barrels a day from a peak of 12.5 million. The International Energy Agency predicted the United States will become the world’s biggest oil producer by 2020, overtaking Saudi Arabia and Russia. The American gas glut could soon turn the United States into a liquefied natural gas (LNG) exporter and the American trucking industry, probably the world’s biggest single consumer of diesel fuel, is talking about converting its fleet to natural gas.

If you are sitting in Nigeria, Egypt, Algeria, Mexico or Venezuela, you would be watching the American gusher with white-knuckle fear while putting on a brave face and praying that China will somehow take up the slack. These countries, and others, have been using rising exports and prices to finance food imports and social programs, attract investment from exchange-listed energy companies and buy political popularity (a trick Libyan strongman Gadhafi pulled off for decades, until he took a bullet during the 2011 revolution).

If demand for their energy exports wanes, taking prices down with it, the leaders of these countries are going to have to rethink their economic and social policies in a hurry. But with no fallback industries, there is no ready solution.

Already, some oil-exporting countries are feeling the pinch, a situation made worse by the natural decline in production in some of their old fields. According to the Energy Economist, Mexican oil exports to the United States have decreased to 972,000 barrels a day in 2012 from a peak of 1.6 million in 2004. The United States is importing almost 700,000 fewer barrels a day of Nigerian oil than it did in 2007. Imports from Algeria and Angola are also down a lot.

Some of these countries face lower energy-export revenues just when they need ever-rising amounts of income to keep their citizens fed. Take Nigeria. Its population has gone from about 90 million in 1991 to about 170 million. By 2050, the population will be 300 million or more. Egypt’s population is also rising at staggering rates. At the same time, climate change threatens to reduce farm yields, especially in water-scarce North Africa and the Middle East.

All of this is a recipe for political, social and economic turmoil. When the United States relied heavily on imported energy, it was not in its best interests to see the exporting countries fall apart. Now that it is on its way to energy self-sufficiency, it may not care what happens in those countries. The American shale revolution could trigger ugly revolutions elsewhere.