North American revolution
It is unquestionable that unlocking North America’s shale reserves has transformed the US. The continent is now a natural gas net exporter and when it comes to the oil industry, production has reached new heights and has experienced the largest five year increase in crude production in US history, according to Deloitte’s ‘Oil and Gas Reality Check 2014’. The success of the nation has even started debate between lawmakers to overturn the ban on exporting raw crude from the US. This policy shift could allow the upstream sector to maximise all benefits of the shale revolution and could allow the downstream sector to in return import sour heavier crudes which US refineries are engineered to process more easily.
The revolution has resulted in growing domestic energy production and the US is becoming more economically independent. The petrochemical industry has also benefitted hugely from shale gas as the industry had moved towards the Middle East to take advantage of lower cost feedstocks. Now, Deloitte reports, nearly 150 chemical industry projects worth over US$ 100 billion have been announced throughout the US in recent years due to the country’s new competitive position in the natural gas market. The manufacturing industry in the country is also benefitting and is making steps towards what Deloitte has called ‘an energy driven resurgence.’
Rules of geopolitical engagement
The true success of the North American energy sector has however called some to bring US policies in to question. Deloitte, in their report, comment that some commentators believe the US may turn inward to concentrate on domestic issues and move away from foreign policy, impacting the world and geopolitics as a whole.
The US has already become less reliant on energy supplies from the Middle East and the International Energy Agency has reported that by 2035 the US will get only 3% of its crude supplies from the region. Middle East crude cargoes are however, already anticipating the shift, Deloitte report. Exports are already being redirected towards Asia rather than towards the US and in some instances Europe. Yet, Deloitte has said that predictions for US disengagement from the Middle East are overstated due to the ‘fungibility’ of the world oil market.
When it comes to Russia, the energy revolution in the US is causing complications around its place in the global oil market. Russia used to once lead the non-OPEC producers and sought to band the countries together, however the US superseded Russia to become the world’s largest natural gas producer in 2009 and did somewhat quash this. The sheer volume of shale production in the US and the success the country has reaped has also impacted Russia’s relationship with the rest of Europe. Many countries in the region are now investing in their own search and development of shale resources, which will impact their reliance on Russian imports. Also, even though US LNG exports are not yet in fruition, the prospect of additional supplies will give European buyers more negotiating power when seeking imports from Russia, a country which, Deloitte reports, relies on the oil and gas industry for ‘nearly two thirds of its export revenues and half of its GDP’.
Looking at China, Asia stepped up to invest in the North American energy revolution as a whole. The country not only started investing in the US but has put vast sums of money in to the Canadian oilsands. Deloitte report that ‘since 2010, China has invested US$ 45 billion…in the North American energy renaissance.’ This is not however thought to only be because it opens up beneficial trade routes, potential and packages. Deloitte believes that these investments are aimed towards giving China the access to technologies and know how that will eventually allow the country to go in pursuit of its own shale phenomenon.
Deloitte’s view in a nut shell
- ‘The geopolitical effect of the North American energy resolution will be felt in fewer energy related tensions across Eurasia.’
- ‘The US will be wealthier overall.’
- ‘Rising North American production will necessitate the rebalancing of its oil and gas exports between Europe and Asia to secure vital revenues for its economy in the coming years.’
- ‘For China, the geopolitical effects are altogether positive. China can continue to take a free ride on US naval supremacy…supply competition with the US have been moved into the future.’
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