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Now largest oil and gas producer, will the US get extra clout?

A recent article in the Wall Street Journal (WSJ) reported: The U.S. is overtaking Russia as the world’s largest producer of oil and natural gas, a startling shift that is reshaping markets and eroding…

Oil and gas production is growing in the US, mainly thanks to unconventional production methods. EPA/Jim Lo Scalzo

A recent article in the Wall Street Journal (WSJ) reported:

The U.S. is overtaking Russia as the world’s largest producer of oil and natural gas, a startling shift that is reshaping markets and eroding the clout of traditional energy-rich nations.

There are many recent similar claims along with others more critical of any notion of increased clout for the US. Much has been made of a technological revolution in extraction methods (non-conventional petroleum or NCP) as a source of resurgent US global power.

But these opportunities have also opened up grave concerns about safety and ecological impacts of new techniques, including horizontal drilling, new techniques of hydraulic fracturing (‘fracking’), heavy oil from Canadian tar sands and deep ocean drilling (blithely regarded as safe before BP’s Deep Horizon catastrophe of April 2010).

Clearly, there are major concerns about under-regulation, strongly expressed in the “golden rules” of the IEA itself.

And the NCP boom is conditional on a high international price for crude oil that still exceeds its year-average 2008 peak of US$100/barrel. This price is maintained despite expanded US production, the demand-depressing effects of global economic stagnation and (welcome) improvements in US end-use vehicle fuel efficiency standards in place for around five years.

Given space constraints, rather than on crude oil, the focus of the present comment is mainly on natural gas, conventional and non-conventional. As the IEA points out, the importance of gas is rapidly growing internationally (see Figure 1). The IEA also notes the multiple forms of non-conventional gas.

Figure 1: Global production of oil and gas combined (millions of tonnes of oil equivalent, MTOE). International Energy Agency

Longer run petroleum production trends

Expansion in oil and especially in gas is widely distributed internationally. According to annual data published by BP, the production level of Middle East as a whole (including Iran) has increased from only 15 BCM (billion cubic metres) in 1985 to 358 BCM in 2007 and as much as 548 BCM in 2012, a comparable level with that of the US and Russia.

BCM = Billion cubic metres

The Middle East’s share of global gas production has expanded from 4% to 16% over the same period, due mainly to activity in Qatar (exported) and Iran (mainly consumed domestically but with major exported potential hitherto thwarted by US policy) (see Tables 1 & 2).

The WSJ piece fails to capture this major trend in global gas markets.

Figure 2: Production of oil and gas combined (MTOE). The Middle East but also ‘Other’ have expanded at the expense of comparatively static US and Russia, though recent NCP trends in the US have arrested a pre-existing decline. ‘Other’ includes states like China, Turkmenistan, Norway, Australia, Indonesia. B.P. Energy Statistics, 2013

Growth in production of oil and gas combined has not been in the US or Russia but in the Middle East and ‘other’ categories (see Figure 2).

Another key indicator is reserves of gas, where Russia, followed by Iran, remain clear leaders (see Table 3).

Data from the US Department of Energy’s Energy Information Administration indicates the international distribution of shale gas (see Table 4).

Iran (hitherto a pariah-state for the US) is the largest single holder of conventional oil and gas combined, despite its export prospects being thwarted by existing economic sanctions.

Political Economy

European gas prices ($15/GJ) far exceed those in the US ($3-6/GJ), but a lack of relevant processing and transport infrastructure will for some years prevent expanded US gas production for that market.

B.P. Energy Statistics, 2013

USDOE, EIA estimates, 2013

Iran’s and Russia’s ability to form a gas-export cartel is limited by a sustained global shift to non-conventional gas in the EU, China, as well as the US.

Substantial net revenue from oil and gas production also depends on low costs of production. These low extraction costs continue to exist in the Middle East, whereas viability of high cost shale oil production in the US still depends significantly on the same continued high oil prices that augment the revenue flows to the ruling elites of Middle East ‘rentier states’.

As in Saudi Arabia domestically and its intervention in support of the ruling elite in Bahrain (2011-12) oil-rich regimes have sought to ‘buy off’ (co-opt) or otherwise resist potentially restive subject populations open to political mobilisation in a renewed ‘Arab Awakening’.

The latter development has put into serious question dubious posited relationships between oil prices and Middle East ‘stability’ and democratisation.

Ecological impacts and mitigating climate change

One inadvertent but desirable effect of low gas prices and the expansion of production in the US has been to reduce its domestic CO2 emissions. The mechanism has been displacement of dirty and CO2 emissions-intensive coal – though some displaced coal is being diverted to the EU, where its low price is inhibiting CO2 abatement there. There remain some concerns about ‘fugitive’ methane as a potent greenhouse gas from NCP development.

Low prices for US gas also raise the possibility of substituting LNG or CNG for (imported) diesel fuel in heavy vehicles.

Geopolitics: rising global multipolarity and US relative decline

The US is trying to contain potential regional rivals such as oil and gas-dependent China, as well as oil and gas-rich Iran and Russia. But policies that seek to reverse a multipolarising trend in global politics can be self-defeating for an over-extended US.

If the US strategy were about promoting peace in the Asia-Pacific it would be acting to ease concerns about energy supplies available to economies in the region. It would not be seeking (as it currently is) to use these regional rivalries in a destabilising way to ‘balance’ against and ‘contain’ China.

Several foreign policy realists, including Patrick Porter, have argued that the US should instead adopt a more cooperative and inclusive grand strategy in key regions of a multipolarising world. The US could implement such an approach (in part) by promoting climate-friendly energy security policies internationally.

These might include: international transfer of new extractive technologies to the extent these allow safe and ecologically sound access to indigenous sources of non-conventional gas; and a rapprochement with Iran to achieve multiple mutual benefits, not least enhanced Iranian gas exports to coal-dependent India and China, pipelined or as LNG, thereby assisting in the global CO2 mitigation effort.

Implications of NCP are broad-ranging, complex and uncertain. But the technical revolution in NCP, internationally and in the US, is not a particular source of comfort to advocates of a still entrenched but over-extended and unsustainable US global hegemonism.

Join the conversation

9 Comments sorted by

  1. John Newlands

    tree changer

    My impression is that the US fracking miracle is already close to peaking. Tight oil and gas from horizontally drilled and fractured wells seem to have two good years then new wells must be drilled. This is unlike conventional free flowing oil wells that can produce for years. There's the old saying you can't get blood out of a stone. The need to keep re-drilling means the net energy is lower for each barrel of oil. The US was also lucky that some of the best shale is in sparsely populated areas…

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    1. Barry Naughten

      Energy political economist and international relations specialist at Australian National University

      In reply to John Newlands

      Mr Newland's point about some of the best US shale being in sparsely populated areas seems important. Certainly, there seems to be a clearer recognition of environmental constraints elsewhere (Europe, China) despite the large estimated reserves -- especially in China, and especially given the potential demand for gas and oil from import-dependent China.
      To what extent do these current differences in the rate of exploitation reflect population densities and distributions as distinct from other risks…

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  2. Vincent Beales

    CO2 Producer

    None of the statements in the, scene setting, second paragraph are true in my opinion. All of the so called new techniques of horizontal drilling, fraccing or oil from tar sands are new. The newest is the development of horizontal drilling which has occurred over the last 30 years enabled by directional drilling technology.
    Also the industry never 'blithely' regarded that deep sea drilling was safe. The industry does not blithely make decisions about safety in any circumstance.

    I suggest The Conservationist gets some balanced fact checker experience before publishing articles with sweeping, factually incorrect, statements in the name of good journalism.

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    1. David Bindoff

      manager

      In reply to Vincent Beales

      Vincent B, if we disregard 'blithely', is it not true that "But these opportunities have also opened up grave concerns about safety and ecological impacts of new techniques" referring to fracking , deep sea drilling, tar sands production and perhaps horizontal drilling?

      I'm just struggling to identify what you are referring to as non-factual (I certainly have heard a lot of concerns about these issues)

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    2. Barry Naughten

      Energy political economist and international relations specialist at Australian National University

      In reply to Vincent Beales

      I will readily admit that adverbs and adjectives should be avoided wherever possible, and that clearly applies to the adjective I've 'blithely' used here.
      However, Mr Beales and I may not in the end disagree so much about the factual claims. As a petrophysicist, does he contest the enormity of the Deep Horizon catastrophe? Though the worst to date, does he claim it was an isolated incident? Does he deny that lax or compromised regulation had a role in its causation? Does he argue that "blitheness…

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    3. Vincent Beales

      CO2 Producer

      In reply to Vincent Beales

      Other than the typos I stand by my comments:
      None of the statements in the, scene setting, second paragraph are true in my opinion. All of the so called new techniques of horizontal drilling, fraccing or oil from tar sands are NOT new. The newest is the development of horizontal drilling which has occurred over the last 30 years enabled by directional drilling technology.
      Also the industry never 'blithely' regarded that deep sea drilling was safe. The industry does not blithely make decisions about safety in any circumstance.

      I suggest The Conservation gets some balanced fact checker experience before publishing articles with sweeping, factually incorrect, statements in the name of good journalism.

      Mr. Naughten nowhere did I comment on the environmental or regulatory status or impacts so why the questions? Also 'The ConversationalIST' was a typo, corrected, and refered to the website not you. Apologies for any confusion.

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    4. Barry Naughten

      Energy political economist and international relations specialist at Australian National University

      In reply to Vincent Beales

      Mr Beales claim is still not clear but what he apparently means to say is that the techniques listed in my second paragraph are not new, but he has left out the word 'not'. The issue 'newness' (novelty) is not in dispute and my arguments do not hinge on the precise interpretation of 'new' technology. For instance, my understanding is that some form of fracking has long been in use by the industry. However, it would be strange indeed if resurgent technological progress did not occur given the unfolding…

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    5. Mike Stasse

      retired energy consultant

      In reply to Vincent Beales

      "Blithely" may have been the wrong word to use, but take the Deepwater Horizon disaster.... that well was in such deep water, and so deep beyond the bottom of the sea that appropriate and VERY expensive safety procedures should have been taken. But because oil was 'only' $100 a barrel at the time, such expense was unaffordable, and so BP did not spend it.... at much much greater cost, history now tells us.

      Post Peak Oil, the cost of getting unconventional oil will skyrocket. It's ironic that…

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  3. Mike Stasse

    retired energy consultant

    A "classic" east Texas oil well from the boom years cost about $400,000 to drill in 2013 dollars. For that amount, oil would flow in rivers, sometimes for decades.

    They produced thousands, sometimes tens of thousands, of barrels a day. Some had flow like that for decades, drilled in the 1930s and they were still easily getting a thousand barrels a day in 1960. That is a long time.

    In contrast, a shale-oil well in the Bakken formation in north central North America costs between $6.5 and $10…

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