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ORIGINAL FRENCH ARTICLE: La guerre économique se chauffe au gaz de schiste ?

by Éric Serres

Is Economic War Heated by Shale Gas?

Translated Friday 23 January 2015, by Gene Zbikowski

Shale gas production has redrawn the world energy map. For a long time, Russia and the OPEC countries led the dance, but now, thanks to non-conventional gases and oils, the United States is on the point of becoming the world’s biggest exporter of hydrocarbons … and other countries want to go down the same road.

Will the exploitation of non-conventional gas and oil definitively upset the geo-political balance that has been established up to now by black gold? “This is the first big upheaval in international relations since the great oil shocks of the 1970s,” is the answer already provided by Patrice Geoffron, a professor in geo-politics at Paris-Dauphine university.

And for good reason. The United States – the world’s top economic power – was the first to embark on the adventure. The cumulation of the discoveries made by American engineer George Mitchell, who adapted the technique of hydraulic fracking to marly shales in 1990, plus the discoveries made fifteen years later by the Devon Energy company, which perfected horizontal drilling, have changed the game.

So the forecasters are announcing that the United States might be 99% self-sufficient in energy by 2030, whereas in 2005 the U.S. only produced 70% of the energy it consumed. Not satisfied already with having deprived Russia of the title of world leader in natural gas production, the U.S. should soon occupy the same position in oil production. The U.S., which long imported hydrocarbons, could become a hydrocarbon exporter in 15 years.

But other beneficial effects are feeding the American economy. Shale gas having been substituted for coal in electricity production, electricity is now being exported. In a two-fold irony of history, the U.S. is even announcing that it has halved its carbon dioxide emissions which have returned to their 1990s level, thanks to the substitution.

Obviously, the U.S. neglects to mention the numerous pollution incidents caused by leaks as shale gas is extracted … leaks which are far more numerous than when conventional natural gas is extracted.

But beyond the resulting economic boom for the United States and U.S. trade, which is reinforced by the free trade agreements between the U.S. and Europe, this reversal of the situation now poses questions for all the countries that have such reserves: not only Europe in the first place, which is not totally lacking (Germany, Denmark, Poland, the United Kingdom) but also emerging countries like South Africa, Brazil, Argentina, and above all China.

Thus as early as 2013 China began distributing 19 concessions for prospecting in regions that might have shale gas to 16 Chinese companies… Thanks to future exploitation, the country, which is said to possess the world’s biggest non-conventional gas reserves, could reduce its dependency on Russian gas by 2035.

So everybody’s saying that there’s a way to reverse the course of their energy history. On the Old Continent, where half of the countries remain dependent on Russian deliveries for 60% of their natural gas (100% in the Baltic countries), the geopolitical energy balance may no longer be played out in the East, or less so…

Poland, which is said to have reserves of 4.19 billion cubic meters of shale gas, has opened its doors to foreign countries and is dreaming of breaking its dependence on Russian gas. “In Poland’s case, there really is the idea of weakening the lever that Russia has,” Bertrand Le Guern of Petrolinvest (a Polish oil company), explained. “You need to know that Poland pays 30% to 40% more for Russian natural gas than the market price.” Shale gas could also make it possible for Poland to renovate its old coal-powered power stations. Poland uses coal to produce 90% of its electricity.

Confronted with this shale gas and oil revolution, the world has hardly taken measures to attempt to adapt, without for all that having shown itself capable of foreseeing the long-term consequences. “Perspectives have changed in very short order. So chain reaction effects have to be foreseen, but nobody yet measures their real extent,” Patrice Geoffron said.

The first of these effects is only a few weeks old and looks very much like a backfire lit by the producers of conventional oil and natural gas. Under the leadership of the Middle East oil-producing countries, and in particular Saudi Arabia, an increase in oil production was decided, and through a banding effect, a dizzying fall in the price of a barrel, which has fallen to the almost historic level of 50 dollars.

This is a way of fighting against the flood of non-conventional hydrocarbons. It’s also a way of making its already-costly extraction even less profitable and thus annihilating any idea of American withdrawal from the Near East, because it’s impossible for cheaper oil to be a matter of indifference to an American economy that is hooked on cheap energy.

“Russia has also increased its production. Gazprom is going even further and is playing every card. Behind the scenes, it’s organizing demonstrations in Rumania and Bulgaria against the exploitation of shale gas,” Bertrand Le Guern concluded.

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