While the development of unconventional hydrocarbon resources has clearly transformed the global energy landscape, the second order impacts have not been nearly as well documented as the primary effects. Clearly, the tremendous increase in production from shale gas and shale oil has greatly aided our country in its emergence from the depths of a prolonged and painful economic recession. The revolution occurring in the oil industry has provided thousands of jobs, most notably in communities such as North Dakota, Texas, Pennsylvania and Ohio where growth in hydrocarbon production volumes has been most dynamic and where needed infrastructure build-out has rapidly followed.
Another benefit has been the dramatic reduction in prices for available feedstock for the revitalized U.S. chemical industry in the form of lower ethane prices. Over the last several months ethane prices in the U.S. have averaged anywhere between half to a quarter the price of European naphtha prices, naphtha being the feed most available for use in the European petrochemical complex. On a larger scale, the U.S. manufacturing complex has benefitted greatly from the increased availability and lower price of natural gas as a key input cost.
Perhaps one of the more intriguing aspects of the shale gas boom, however, is the impact that it is starting to have on foreign policy, not just for the U.S., but for a number of foreign countries as well. Many industry observers are quick to acknowledge the improvement in U.S. energy security derived from the boom in shale gas and shale oil production. However, few have been as observant with regard to the changing global dynamics of energy as a foreign policy lever. A few months ago the Wall Street Journal highlighted the knock-on effects of U.S. shale gas development as liquefied natural gas (LNG) cargoes that would have been bound for the U.S. just a few years ago are now finding their way to Europe. These LNG cargoes are in turn displacing a material portion of the natural gas exports that were flowing into Europe from Russia.
Over the last several years, Europe had been dependent on Russia for about a quarter to 30% of its energy needs, an uncomfortable situation that afforded the Putin regime greater bargaining power when addressing other foreign policy issues. In 2006 and 2009, Ukraine felt the brunt of the Russian energy policy “hammer” when the latter country cut off supplies of gas during the harsh winter months. Now that situation has begun to change as the new sources of energy supplies are making their way to Europe. Moreover, Ukraine recently signed agreements with Royal Dutch Shell and Chevron to develop two prospective shale gas basins.
While first gas from the Yezivska and Olesska shale gas basins would not likely come to market until the 2018-2019 time frame, these additional resources would go a long way toward breaking the pattern of Russian hegemony over its breakaway republics. Taking this example one step further, a number of other countries throughout the world such as Argentina, Australia and China are also known to have significant shale gas resources waiting to be developed. While several years will likely be needed to study and understand the unique geologies of these basins and build out the necessary associated infrastructure, the impact of their development likewise has the potential to greatly reduce the world’s dependence on oil and natural gas from rogue nations.