A regular theme on this blog (here, here, here and here) is how the marked surge in U.S. oil and natural gas production over the past several years is reviving America’s strategic prospects. The energy boom, which is due largely to innovations in extraction technology – namely, hydraulic fracturing (“fracking”) and horizontal drilling – that have unlocked gas and oil deposits previously thought inaccessible within tightly-packed shale rock formations, is a key geopolitical development already triggering significant global reverberations. It puts paid to what was just a short time ago widely held notions about how the country was inexorably depleting its hydrocarbon energy resources. It also puts a major dent in what many believe is this era’s mega-narrative – that China’s global preeminence is all but ordained.
Both of these points were amplified by a number of developments and observations over the last few weeks:
- The U.S. Energy Information Administration reports that domestic oil production increased more in 2012 than in any other single year in the entire history of the U.S. oil industry and is set to grow even more in 2013. The EIA also predicts that U.S. oil imports next year will be about half of their peak levels in 2004-07 – an astonishing decline even given the U.S. economic slowdown.
- The U.S. National Intelligence Council, in its latest assessment of long-term global trends, calls the shale revolution “an energy game-changer.” It notes that “In a tectonic shift, energy independence is not unrealistic for the US in as short a period of 10-20 years” and that “By 2020, the US could emerge as a major energy exporter.”
- New reports issued by Exxon Mobil, BP and Deloitte echo the NIC’s judgments about U.S. energy self-sufficiency and export capacity. And the International Energy Agency’s latest World Energy Outlook forecasts that the United States will overtake Russia as the world’s largest producer of natural gas by 2015 and will come to rival Saudi Arabia in oil output by the end of the decade.
- A new Goldman Sachs assessment pegs the energy boom as one of the key structural advantages that will help sustain U.S. preeminence.
- Foreign policy guru David Rothkopf opines that “America’s energy boost is possibly the biggest geopolitical change to hit the world since China’s rise,” and even worries that it may be too much of a good thing id it causes U.S. leaders to become complacent about other national problems.
- Surging energy output is creating a boom in Houston as well as a gusher of oil tax revenues in Texas. And even financially-strapped California is in a prime position to benefit from the shale oil revolution. The EIA believes that the Monterey shale field in the state’s center contains some 15 billion barrels of oil. According to estimates, tax receipts from this largely untapped bounty could total $250 billion over the next two decades.
- North Dakota, which is at the epicenter of the U.S. shale revolution, recently eclipsed Alaska as the second-largest oil producer among the U.S. states. Drilling activity in the Bakken shale region there is so great that the unwanted natural gas flared off from oil wells creates a large patch of light visible in night-time satellite photos.
- The energy revolution is reviving the fortunes of former steel towns in Pennsylvania and Ohio that are located near the gas-rich Marcellus shale formation.
Looking beyond the water’s edge, there is a growing consensus that the energy boom gives the United States newfound leverage in foreign policy. Bill Richardson and Spencer Abraham, both former U.S. energy secretaries, highlighted this point when they wrote last month in the Financial Times that U.S. gas exports “would fill a vital role for its allies in Europe and Asia, many of which are dangerously dependent for natural gas on foreign powers frequently hostile to US interests. Reliance on Russian gas in Ukraine and the EU would be likely to diminish, for example.” Before his service ended this month, Senator Richard Lugar underscored this notion by introducing the “Liquefied Natural Gas for NATO Act.”
Even broader strategic ramifications are in the works. One expert believes that with the prospect of large-scale exports, the United States “may find itself in the extraordinary position of being able to invert its signature strategic weakness of recent decades by using energy exports to the Middle East as a source of influence and economic strength.” And with Moscow relying on oil and gas exports for much of its revenue, most observers expect the emergence of alternative gas suppliers to accelerate the denouement of Russia’s great power aspirations. As one puts it, “Within the next five to ten years, regimes that are dependent upon energy exports will see their power diminished.”
All of this evidence bolsters the case for America’s strategic future. But what’s the impact on China’s trajectory? It is true the country possesses vast shale reserves – indeed, they are thought to be even larger than America’s – and Beijing is making a big push to increase its shale gas output. However, as earlier posts argued, an array of constraints—including complex geology, lack of access to advanced technology, inadequate infrastructure and other institutional deficiencies – make it questionable whether China will be able to replicate the U.S. energy renaissance. This point is underscored in a report last week in the Wall Street Journal, which contends that “China’s revolution in shale gas is more a distant dream than a work-in-progress.”