Shale Gas Revolution; Will US lose interest in Middle East?

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As long as the supply of oil in not interrupted, US should have no interest in an economic or political crises happening in Middle East.

Shale gas is an unconventional source of natural gas that is found trapped within shale formations. A simple difference between conventional and unconventional gasses is that, when we drill a hole in the ground the conventional gas will flow out but in case of unconventional gases a special process is required to extract the gas.

The technology used to extract shale gas is called hydraulic fracturing or “Fracking”. In hydraulic fracturing a fluid having water, sand and toxic chemicals is injected in the wellbore at very high pressure, causing the porous shale rock strata to crack, this fractures the surface and allows the gas to be released.

Drilling the surface for shale gas started in 1930s and in 1947 the first well was fracked in the US, but work at industrial scale started only in the 1970’s when the conventional resources of the US started to decline. In 2000 shale gas provided only 1% of U.S. natural production; by 2010 it was over 20% and the US government’s Energy Information Administration predicts that by 2035, 46% of the United States natural gas supply will come from shale gas.

It is estimated that China has the world’s largest shale gas reserves of about  1275 trillion cubic feed followed by US with the reserves of 862 trillion cubic feet. Pakistan and India have reserves of 51 and 63 Trillion cubic feet shale gas.

Although China has the higher reserves but US has led the rest of the world in the development of shale gas technology. In April 2012 the Federal Energy Regulatory Commission (FERC) approved a proposal and allowed an American liquefied natural gas (LNG) energy company to export LNG abroad. This approval is considered to be a landmark for the US shale gas revolution as in the last 40 years US had only imported energy and not exported any. This approval is the first of its kind in the 40 years since this technology was developed, and signals the turning of US from an importer of energy to a major exporter, in near future.

History tells us that a major change in energy structure often triggers a new round of economic development. With such high reserves of shale gas US will not only become energy independent but will start exporting energy. The energy revolution could lead to the industrialization of the US economy and could deliver sustainable growth. It will help pull its manufacturing industry out of recession and give a strong boost to the economic recovery. US may start production of goods like computers, fabricated metals and automobiles that are currently manufactured in the emerging nations and US is one of the biggest consumers at present. In such ways US will start competing with emerging market share rather than being a consumer.

In this case china will be affected the most because it will not only lose a biggest consumer but will also find another compititor to share the market.  Some researchers suggested that as this threat is still sometime away, China should move away from export dependent economy and should concentrate on domestic consumption.

Shale gas revolution will bring United States in more dominant position in the global energy distribution. With that in mind, observers will certainly watch how the US will adjust its global strategy, especially its Middle East policy. There is a perception that US may lose interest in Middle East.

According to Energy Information Administration (EIA), the crude oil production of U.S exceeded an average of 7 million barrels per day in November and December 2012, which is the highest volume since December 1992. International Energy Agency (IEA) said that US could even cross Saudi Arabia and Russia to become the world’s biggest oil producer by 2020.

According to a publication in German Institute for International and Security Affairs Shale gas boom and decline in prices will not continue in coming years, nor can the same scenario be expected to occur in the oil market. US domestic oil production is about 55% percent share of consumption and remaining 45% was imported.  Normally it’s believed that majority of current US oil imports come from Middle East but in actual it’s contrary to the widely held beliefs. 52% of the oil Imports of US comes from the Western Hemisphere; Canada supplies 29%, Saudi Arabia 14% and Venezuela 11 % of the oil imports of U.S

Above facts clearly illustrate that U.S is currently also not much dependent on Middle East, but still the US is no less interested in the region even with already declining imports. The reason behind this is that gas market has been organized regionally but the oil market is global. If anyhow US managed to completely replace its imports from the Middle East, still it will be susceptible to fluctuations in oil prices.  Saudi, Iraq and Iran, the world’s top three crude oil producers are in the Middle East and their production capacity is most important tool to offset price and mass quantity fluctuations.

In 2012, the Middle East witnessed unrest in many countries. The Arab Spring that originated in Tunis and Egypt is influencing and changing the Middle East. This Arab Spring is spreading wider and is intensified by power struggles on deeper levels because some forces in and outside the region are influencing the power struggle in the region. But in all this, GCC countries maintained a high level of petroleum production balance in the supply of oil from Middle East to the other countries of the world that helped in stabilizing the price of oil.

As long as the supply of oil in not interrupted, US should have no interest in an economic or political crises happening in Middle East. US will only feel the effects when there is interruption of supply or price fluctuations.

However still a perception is also there that if the unrest in the Middle East continues and US shale gas technologies become commercialized, the global landscape of energy resources will change and the United States will become less and less reliant on Middle East oil, until this reliance finally ends.

One thing is quite obvious from shale gas revolution that the countries that are both energy producers and leading consumers will benefit most from these changes, as their economies can grow while simultaneously reducing dependence upon imports. So this change will matter most to China and US, the world’s number one and number two energy consumers respectively.

This favorable scenario also calls for a change in ‘attitudes’ of the global powers; find your solutions in research and development of ‘own’ resources instead of running into war every time you get a sigh that your ‘interests’ might be getting hurt in foreign economies. Self- reliance and Austerity are better than global hegemony and infliction of war on humanity. Perhaps only a change-in-perception will bring the direly needed respite to the people of USA and the world.

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Atiq is an IT professional, his area of interest are Socio-Politico issues of subcontinent and regional security issues with a special focus on Afghanistan, India and Pakistan. Can be reached at atiq@pkkh.tv and tweets at @atiqpkkh.

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