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The New Geopolitics Shale Could Bring

Energy law expert Alan Riley
Energy law expert Alan Riley

Shale gas could change the world – and not just in energy prices and commercial terms, but in the balance of power. Everyone from the oil baron to the ordinary consumer is becoming aware of the changes that extraction of gas from shale can mean to their pockets. But wider and deeper connotations already exist, as Alan Riley explains.

Riley, professor in energy law at City University London, has been vocal about his belief that unconventional gas extraction on a major scale could alter the geopolitical power balance fundamentally.

By 2030, the balance of power will have shifted from the Middle East and oil-producing countries to the US and possibly China, he says. The Economist magazine recently pointed out that gas at $2.50 (€1.96) mBtu is equivalent to a barrel of oil costing $15, rather than around $100 as at present. The International Energy Agency notes that this year, at its lowest point, natural gas in the US traded at around one-fifth of import prices in Europe, one-eighth of those in Japan. In times of economic misery, cheap energy cannot and will not be ignored.

In his view, no doubt shared by some energy scholars, the discovery of shale is the "greatest development since coal replaced oil as the principal transportation fuel". And in Europe, it only needs one country to take the lead in embracing shale-gas harnessing and both energy markets and power relationships will be re-drawn.

Dr Riley has been spreading his message through the media and at public conferences, including an opinion piece in the New York Times, and a presentation to industry and environmentalists at the annual Shale Environmental Summit in London. One of his key points is that the balance of power will be rocked, down to the numbers, when unconventional gas is explored fully. The 80:10 proportion, meaning that Russia and the Organisation of Petroleum Exporting Countries (OPEC) control 80 per cent of fossil fuel production, while China and the OECD accounted for only 10 per cent. This, and all it stood for, would be dismantled were shale deposits to be developed on a major global scale. Prof Riley estimated that, with government blessing and appropriate development, the global gas market could amount to 6Tcm by 2030, two-thirds more than an upbeat estimate given by the International Energy Agency. “This is very big news. It has world geopolitical consequences,” Riley says.

The International Energy Agency supports, to an extent, Riley’s scenario. In its World Energy Outlook, published November 12 in London, the IEA says the US could be net energy self-sufficient in just over 20 years, at current development. The IEA can foresee the crippling reliance on Middle East oil for energy, which has influenced so many geopolitical decisions by Washington, to come close to reversing within a few short decades. To quote its report (crystal-ball gazing, it is true, but of the most informed and sober variety): “While regional dynamics change, global energy demand will push ever higher, growing by more than one-third to 2035. China, India and the Middle East account for 60% of the growth; demand barely rises in the OECD, but there is a pronounced shift towards gas and renewables.”

The Agency also projected that the US would become the world’s biggest oil producer by the third decade of this century, overtaking Saudi Arabia. Alan Riley and other commentators suggest that Washington will not have the same interest as now in protecting transport routes for oil, critical sea lanes for example, when it is the biggest producer and self-sufficient to boot. Would this create a nightmare for global security, or will other powers such as China, step in to fill the policeman role?

Dr Riley feels that the emphasis in public discourse on possible harmful effects of shale extraction means a bigger theme is being missed. “Environmental issues cause people to lose sense of the impact of shale,” he said at the Shale Gas Environmental Summit in London.

He argues that, unless the world goes whole-heartedly for unconventional gas, the emerging giant economies of China and India, for example, will have no choice but to continue reliance on dirty coal. And, tackling this issue also for the New York Times, Riley writes: “Although the green movement might at first see shale gas as an enemy in this fight, it may in fact turn out to be a friend. Broad development of shale gas resources — with proper ecological safeguards — could be the best way to achieve the quick cuts in carbon dioxide emissions that we need to maintain a habitable environment on Earth.”

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