Syed Rashid Husain

 The writer is Vice President of Al-Khobar-based Al-Azzaz Est., eminent journalist and energy analyst. He writes a popular weekly column   ‘Energy Outlook’ for Saudi Gazette and also contributes to Pakistan’s Dawn and the BBC.

Shale Development Opened up New Vistas In The Energy World

by shariff mohammed | Apr 02, 2014

Shale development has opened up far new vistas in the energy world. A revolution seems engulfing the entire global energy dynamics. Courtesy the triple digit prices and the hydraulic fracturing, extraction form shale and other formations in the is booming. Many are now insisting that the US is on the way to energy independence and that this would have far larger consequences - in term of Realpolitik too.

Is it really so? And could this revolution be sustained on long term. 

Washington heavy weights are now warning against complacency underlining that despite the growing domestic output, the U.S. was still vulnerable to oil shocks.  The U.S. Energy Information Administration (EIA) has estimated that in the second half of the decade US crude oil production is likely to be close to its 1970 peak. By next year, the EIA thinks, The US could be relying on imports for just 24 per cent of its liquid fuel consumption, down from over 60 per cent in 2005. But despite this, the US remains vulnerable to oil price shocks caused by disruptions in the Middle East and other producing regions in spite of the North American shale boom, Ed Crooks reported quoting a commission of former generals and senior officials led by Admiral Dennis Blair, a former director of National Intelligence, and General Mike Hagee, a former commandant of the US MarineCorps. The commission, which also included Admiral Mike Mullen, the former chairman of the US Joint Chiefs of Staff, and four former ambassadors.

Down the road, things could indeed turn out different. The ongoing shale revolution could be constrained for various reasons, from environment to market prices. But even if it continues at the current pace, rather unabated, full energy independence to the U.S. may not be in sight. "There's a lot of loose talk about the US being 'oil independent', and how that removes the need for us to get involved in some of those parts of the world where we have been sucked in the past," Admiral Blair said. "But however much the US is producing, oil is still a global market. So conditions in oil-producing areas will affect the US."

The commission in its report argued that although physical crude flows into the US may be declining, that does not stop the economy being vulnerable to oil price shocks. There are potential threats to oil flow, the commission identified, including worsening violence in Iraq, or a confrontation with Iran over its nuclear program. Admiral Blair added: "We don't know exactly what type of problems will emerge. But taking a chance on there always being adequate supplies is a foolhardy bet on the nation's energy future."

The commission's recommendations for addressing those threats include ideas for securing global oil flows, including drawing in China to help with the protection of shipping routes, more to lock the country in as a partner than because it would commit large naval forces. And even if those flash points are avoided, Crooks writes strong demand growth in emerging economies could mean that oil prices are pushed higher over time, especially if US production levels off and begins to decline slowly after 2020, as the EIA currently expects. The commission also urged a more effective diplomatic approach to the Middle East and other oil-producing regions. Admiral Mullen said: "We have led far too frequently with the military first."

Admiral Blair too emphasized that shale oil boom was an opportunity for the US to strengthen its energy system to be less vulnerable to future shocks. "Let's take advantage of the opportunity and not squander it," he said. "Let's not be sitting here in 2022, when US oil production is starting to decline again, and be in exactly the same position we were before."

The admiral, definitely has a point.

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