Energy will rescue the West

The energy-short democracies – the United States, most European Union nations, Japan and Israel – are today mostly on the defensive, while energyrich countries run by strong men – Russia, various Middle Eastern states, and Venezuela – are flexing their muscles.

Within a decade, this energy order could flip. Many of the Western democracies are likely to become major oil and gas producers, helping to glut the world and collapse energy prices. And today’s energy-rich countries, most having undiversified economies, will then lose the lion’s share of their revenues and become neutered politically.

The game-changer is “unconventional fossil fuels,” much of it trapped in shale – rock that often contains oil or gas. In the case of gas, the U.S. is developing so much, so fast in so many places that the domestic price for natural gas has more than halved. Whereas five years ago the U.S. planned to build major terminuses to import gas, it is now becoming a major gas exporter. America’s Marcellus Shale formation alone – a natural gas reservoir that lies more than a mile underground beneath Pennsylvania, New York, West Virginia and Ohio – has enough gas to supply the Eastern U.S. for decades.

Europe, though a novice in the unconventional energy game, has already discovered vast amounts. The U.K., in the first shale gas field it drilled earlier this year, discovered a gas deposit close to half the size of Marcellus, enough to fuel the entire British economy for decades. France and Poland have comparable finds; Germany and the Netherlands smaller ones. Europe has also discovered immense amounts of natural gas in the Mediterranean, which Cyprus, Greece and Israel have begun to develop for delivery to the European mainland. Among the Western democracies, Australia, too, has massive amounts of exportable natural gas, as does Canada, Brazil and others in the Americas. As does China and other Asian countries. All told, the International Energy Agency estimates a world store of natural gas sufficient to last 250 years.

A similar tale of unconventional riches is unfolding in oil, where the U.S. has in excess of two trillion barrels, the world’s largest store. China comes next, with some 350 billion barrels, followed by Israel’s 250 billion barrels, an amount close to Saudi Arabia’s 260 billion barrels of conventional oil. Thirty-five other countries, including 15 in Europe, are believed to have lesser amounts of unconventional oil, but they may not remain lesser for long – with each new assessment in recent years, the estimates have climbed with new discoveries.

The cost of developing these unconventional resources, meanwhile, continues to drop. In the case of Israel, which has developed an unusually clean and efficient drilling technology, oil is expected to flow at a cost of US$35 to US$40 per barrel, or less than half today’s world oil price of US$90 a barrel.

The diversified democracies of the world – the U.S. and European countries among others – will profit big time from the world’s endowment of unconventional oil and gas, partly because many of them will become energy exporters instead of importers and mainly because low energy prices will spur their advanced economies. Not so for today’s undiversified, energy-export dependent countries.

Russia, a largely undeveloped country that relies on energy exports to meet half of its federal government budget, would be dealt a crippling blow. In 2009, with falling energy prices following the 2008 financial crisis, Russia’s GDP fell by 8% as its energy export earnings dropped by 60%. As oil prices recovered following the crisis, so did Russia, but in a new world energy order of sustained low prices, Russia’s predicament would be dire.

Because Russia depends on its energy exports to the EU to meet its needs for manufactured goods, for food and for the capital required to maintain its energy infrastructure, its standard of living would plummet, along with its aspirations for status as a global or even regional superpower. As one example, Russia will have lost its ability to cow Europe, as it has on previous occasions by threatening to withhold, or actually withholding, gas deliveries. According to a study funded by the U.S. Department of Energy, the market share of Russian gas exports to Western Europe could be cut in half in the coming decades.

Iran’s government, perhaps the greatest threat to world peace today, would likewise be crippled, perhaps fatally. With millions of Iranians living on $2 or less per day, with high unemployment, high inflation and an economy even more energy dependent than Russia’s, the Iranian government could be unable to keep calls for its overthrow at bay, let alone continue in its role as the world’s premier financier of terrorism. Other mischief-making Middle Eastern governments, and Hugo Chavez’s Venezuela, too, would find their sails trimmed in a world of plentiful energy.

What about undemocratic China? Because it is now an energy importer with a diversified economy, it, like the energy-importing democracies, will doubly benefit from the revolution in unconventional fossil fuels. This boon will entrench China’s status as an emerging superpower and, in all likelihood, its new energy riches will also promote corruption and entrench the Communist Party’s dictatorial rule. The fallout from unconventional fossil fuels does have an underside.

– Lawrence Solomon is executive director of Energy Probe, ep.probeinternational.org.    LawrenceSolomon@nextcity.com

via Democratic jackpot.

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