Shale 2.0 – Is There a Geopolitical Dark Side?
In late 2014 it seemed America’s oil independence was a pipedream and the Saudi’s would force America into renewable energy when they targeted shale drillers for elimination by flooding world markets with new supply. Throughout this Saudi-led war on U.S. shale, bankruptcies overtook the Texas Permian Basin and Bakken Formation in North Dakota; production also fell in the United States from 9.6 mbp to 8.5 mbp. Shale companies never declared defeat; instead, they slashed costs, employed automation and adopted cutting edge technology (robotics, sensors, smartphones) to keep drilling. By 2016 OPEC and the Russians agreed to production cuts and U.S. shale is driving this new geopolitical landscape.
West Texas intermediate crude is now in the sixties and the United States is supplying China and India while “slashing imports from the Middle East and Africa,” causing the Saudis to now try and invest in U.S. shale properties. Taking aim at Russia is also happening since the United States is now a major exporter of natural gas and can “undercut Russian energy dominance over Eastern Europe.” The United States and its allies are now able to withstand political turmoil in Venezuela, Libya and Nigeria—all major OPEC suppliers—when historically supply disruptions would have risked global growth. These geopolitical impacts from increased U.S. shale production allow Washington to apply sanctions on Russia, Iran and Venezuela with zero energy repercussions.
Geopolitical darkness arises when a scenario of Iran and Saudi Arabia going to war or Iran-Hezbollah-Syrian-Israeli tensions spilling into a conflict engulfing the entire Middle East is a scenario that no longer has to involve the United States. Increasingly, the United States doesn’t need the Middle East, but the Middle East still needs the United States diplomatically for political stability and realist balancing to ensure order.
Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University speaks about this new geopolitical reality:
For the last 40 years, since the Arab oil embargo, we’ve had a mindset of energy scarcity, but as a result of the shale revolution, the U.S. has emerged as an energy superpower.
With the United States as the new emergent superpower, OPEC is presented with an unprecedented challenge; if they cut production shale drillers boost output, which undermines OPEC’s market share and manipulates OPEC and Russian budgets inherently dependent on higher oil prices. Additionally OPEC and Russia have to continue artificially restricting supply and raising prices, which benefits U.S. shale drillers and hope the shale 2.0 revolution slows down. Russian then has to befriend Saudi Arabia upsetting their alliance with Iran over the Syrian intervention while monetarily keeping their economy at lower rates of growth, “to finance aggressive foreign intervention from Ukraine to Syria.”
But this new reality also means China, Japan and Southeast Asia have become more dependent on the United States than on the Middle East. The post World War II balancing that has taken place and benefited the world for over seventy years is on the verge of breaking down over U.S. shale production. Depending on your vantage point that is either positive or negative, but the United States can now argue the global order they have ensured should become a shared burden financially and militarily for global shipping lanes and economic access. The U.S. Navy no longer makes sure goods are safeguarded in the Middle East, Africa and the South China Sea since its Permian basins have enough natural gas and oil for America first and foremost.
These are possibly good problems to have, but geopolitics is never that linear or clear; riches for Americans can mean heartache on multiple continents. When energy independence was only a dream in the seventies over the Arab oil embargo now fossil fuel superiority will most likely bring a host of problems that overweigh environmental concerns. Energy accomplishments that bring economic freedom should be celebrated, but don’t forget about the geopolitical backlash awaits America and the world from shale drillers who have superior advantages in reshaping global-energy markets.
Todd Royal is an author and consultant specializing in global threat assessment, energy development and policy for oil, gas and renewables based in Los Angeles, California.