- - Wednesday, January 3, 2018

“The United States will become the undisputed global leader for oil and gas for decades to come,” said Mr. Fatih Birol, head of the International Energy Agency, a Paris think tank. He made this statement at a November press conference to launch IEA’s World Energy Outlook 2017. Thanks to the fracking revolution, America is rapidly and significantly increasing its oil and gas production and this is having far-reaching consequences.

By the mid-2020s, according to the IEA, the United States will become the world’s largest liquefied natural gas (LNG) exporter and a few years later a net exporter of oil as well. Last time America was a net oil exporter was in the 1950s.    

This dramatic change of fortune is due to fracking, an innovative extraction technology. It happened fast, in just 10 short years. And it is the biggest energy production change in history, beating the records of the two previous record holders. By 2025, America’s oil production growth will eclipse Saudi Arabia’s in the 1960s, while its gas production growth will exceed the Soviet Union’s when it exploited its Siberian fields.

One of the great beneficiaries will be America’s economy which is in the early stages of re-industrialization. Manufacturing that left America in search of cheap labor abroad is starting to come back. The main reason is robotics which reduces the cost differential versus foreign labor. A close second, though, is the availability of plentiful and cheap energy, an especially important consideration in energy-intensive industries like chemicals and aluminum.

The Trump administration is giving confidence to investors that the oil and gas boom will keep going: It has approved the Keystone pipeline, opened federal lands and waters to drilling, and improved the regulatory climate for energy.

But the energy revolution’s most dramatic impact is on the global balance of power. And the big loser is Russia, famously described by Sen. Lindsey Graham as an oil and gas company masquerading as a country. In 2014, Russia relied on energy for 70 percent of its exports and 50 percent of its federal budget. Russia needs oil above $70 per barrel to balance its budget but global oil prices have been below that level for several years. The increased American energy production was one of the main reasons for the price drop.

Low energy prices force Russia to be careful with spending on its armed forces and foreign military adventures. After all, at the end of the 1980s, the Soviet Union went bankrupt and disintegrated when it tried to compete in an arms’ race with the U.S.  

But Russia’s biggest loss is geostrategic. The oil market is global and most of the oil is transported by tanker ships. The gas markets, however, are regional and gas is mostly delivered by pipeline. In 2016, pipelines from Russia delivered a third of the gas needed by European Union countries. But for some European countries like Poland and the Baltics the dependence on Russian gas was over 80 percent.

When displeased by Ukraine in 2006 and 2009, Russia shut off the flow of gas through the Ukraine pipeline. This caused gas shortages (some in winter) both in Ukraine and in the rest of Europe. Russia has this economic Damocles’ sword over Europe’s head because Europe has few alternatives to Russian pipeline gas.  But this is about to change.

The U.S. is now sending LNG to Europe by ship. And Australia and Qatar, the other big LNG exporters, are following suit. The IEA predicts that global pipeline gas sales will be 17 percent larger in 2040 than in 2017. But LNG gas sales will be 164 percent larger. The gas market will become a larger, freer and more global market.  And Russia will have less economic sway over Europe.

The same dynamics are also weakening Russia’s position with China. China must import 70 percent of the oil it consumes and 36 percent of the gas. Despite the historical animosity between them, China and Russia signed a $400 billion gas deal in 2014 and are pursuing various other energy joint projects as well.

But the global energy market is changing. Oil and gas that previously went to the U.S. is looking for buyers. The U.S., Australia and Qatar are selling LNG to China.  What used to be a seller’s market has become a buyer’s market.  Which makes Russia less important to China.  

“God has a special providence for fools, drunks, and the United States of America.” This quote attributed to Bismarck, the great Prussian prime minister, says that Americans are lucky. And part of the fracking success is certainly luck because America is rich in hydrocarbons. But the fracking revolution could not have happened without the American entrepreneurs and scientists who contributed their talent and hard work, the workers who braved rough conditions in remote locations, the investors who risked their capital, and the politicians who created the favorable regulatory framework.  

Like all good things, rewards from America’s energy revolution are partly due to Providence. But they are also earned.

• J. William  Middendorf II is a former secretary of the Navy and ambassador. Dan Negrea is a New York investor.

Sign up for Daily Opinion Newsletter

Manage Newsletters

Copyright © 2021 The Washington Times, LLC. Click here for reprint permission.

Please read our comment policy before commenting.


Click to Read More and View Comments

Click to Hide