January 31, 2013
The United States is sitting on massive natural gas and oil reserves that have the potential to shift the geopolitical balance in its favor. Worries are increasing in Russia and the Arab states of waning influence and falling market prices.
Williston, North Dakota, is a bleak little city in the vast American prairie. It's dusty in the summer and frigid in the winter. Moose hunting is one of the few sources of entertainment. But despite its drawbacks, Williston has seen its population more than double within a short period of time.
The city is so overcrowded that new arrivals often have no place to stay but in their motor homes, which, at monthly parking fees of $1,200 (€880), isn't exactly inexpensive. And more people continue to arrive in this nondescript little town.
The reason for the influx is simple: Geologists have discovered a layer of shale saturated with natural gas and oil deep beneath the city. The Bakken formation, spanning thousands of square kilometers, has become synonymous with an American economic miracle that the country hasn't experienced since the oil rush almost 100 years ago.
North Dakota now has virtual full employment, and the state budget showed an estimated surplus of $1.6 billion in 2012. Truck drivers in the state make $100,000 a year, while the strippers being brought in from Las Vegas rake in more than $1,000 a night. President Barack Obama calls the discovery of Bakken and similar shale gas formations in Texas, Colorado, Pennsylvania, Louisiana and Utah a "stroke of luck," saying: "We have a hundred years' worth of energy right beneath our feet."
A Vital Nerve
The future of the American energy supply was looking grim until recently. With its own resources waning, the United States was dependent on Arab oil sheiks and erratic dictators. Rising energy costs were hitting a vital nerve in the country's industrial sector.
But the situation has fundamentally changed since American drilling experts began using a method called "fracking," with which oil and gas molecules can be extracted from dense shale rock formations. The International Energy Agency (IEA) estimates that the United States will replace Russia as the world's largest producer of natural gas in only two years. The Americans could also become the world's top petroleum producers by 2017.
Low natural gas prices -- the price of natural gas in the United States is only a quarter of what it was in 2008 -- could fuel a comeback of American industry. "Low-cost natural gas is the elixir, the sweetness, the juice, the Viagra," an American industry representative told the business magazine Fortune . "What it's doing is changing the US back into the industrial power of the day."
The government estimates that the boom could generate 600,000 new jobs, and some experts even believe that up to 3 million new jobs could be created in the coming years. "My administration will take every possible action to safely develop this energy," Obama said during his most recent State of the Union address.
The gas revolution is changing the political balance of power all over the world. Americans and Russians have waged wars, and they have propped up or toppled regimes, over oil and gas. When the flows of energy change, the strategic and military calculations of the major powers do as well.
It is still unclear who the winners and losers will be. The Chinese and the Argentines also have enormous shale gas reserves. Experts believe that Poland, France and Germany have significant resources, although no one knows exactly how significant. Outside the United States, extraction is still in its infancy.
The outlines of a changed world order are already emerging in the simulations of geo-strategists. They show that the United States will benefit the most from the development of shale gas and oil resources. A study by Germany's foreign intelligence agency, the BND, concludes that Washington's discretionary power in foreign and security policy will increase substantially as a result of the country's new energy riches.
According to the BND study, the political threat potential of oil producers like Iran will decline. Optimists assume that, in about 15 years, the United States will no longer have to send any aircraft carriers to the Persian Gulf to guarantee that oil tankers can pass unhindered through the Strait of Hormuz, still the most important energy bottleneck in the world.
The Russians could be on the losing end of the stick. The power of President Vladimir Putin is based primarily on oil and gas revenues. If energy prices decline in the long term, bringing down Russian revenues from the energy sector, Putin's grip on power could begin to falter. The Americans' sudden oil and gas riches are also not very good news for authoritarian regimes in the Middle East.
European industry is also likely to benefit from falling world market prices for oil and gas. But according to prognoses, without domestic extraction the Europeans' site-specific advantages deteriorate.
German chemical giant BASF has already invested a lot of money in the United States in the last two years. In Louisiana, for example, it has built new plants for the production of methyl amines and formic acid. "The local natural gas price is a criterion that affects the question of where we invest in new production facilities," says BASF Executive Board member Harald Schwager. At the moment, the United States has a clear advantage over Europe in this regard."
So far, the political debate in Germany has been dominated by concerns over adverse environmental effects. Fracking has become a dirty word for citizens' initiatives and environmental groups.
The concept of pumping water laced with chemicals into the earth at high pressures to crack open layers of rock several thousand meters beneath the surface makes many citizens uneasy, even though the technology has, in principle, already been used for decades in conventional gas extraction in the northern German state of Lower Saxony.
At the same time, Germany's energy and climate policy would in fact be a reason to use the new gas reserves. Flexible gas power plants would be the best approach to offsetting unpredictable fluctuations in wind and solar electricity, thereby maintaining a reliable power supply. Besides, burning natural gas generates up to 60 percent less climate-damaging CO2 than burning coal.
With the help of natural gas, the Americans have been able to reduce their CO2 emissions associated with energy production to the lowest level in years. This is one of the reasons the country plans to replace one in six coal-fired power plants with gas power plants by 2020.
At the Munich Security Conference this weekend, fracking will be at the top of the agenda for the first time. In fact, one of the agenda items is called "The American Oil and Gas Bonanza." In past years, nuclear weapons and threats from international terror were discussed at the conference, but this year one of the hot topics is the "Changing Geopolitics of Energy." This shows how important the issue has become. "It is perhaps a permissible exaggeration to claim a natural gas revolution," John Deutch, a former undersecretary at the Energy Department and CIA director, and now a professor at the elite Massachusetts Institute of Technology, recently wrote in Foreign Affairs magazine. Deutch has been monitoring the development for years.
America 's Energy Miracle
In the late 1990s, American oil and gas companies used new technologies to advance into previously unexplored layers of the earth. They drill up to 4,000 meters (13,123 feet) into the shale, then make a sharp turn and continue to drill horizontally. Then they inject a mixture of water, chemicals and sand into the drilled well at high pressure. This creates small fractures in the surrounding rock, allowing gas and oil to be released and rise to the surface through pipes.
New technologies are drastically reducing drilling costs. In 2012, shale gas already made up 34 percent of total production, and the technology is constantly improving. The sector is booming, and there are dozens of new companies searching for additional, previously undiscovered deposits.
In the future, the United States could even go from being a net energy importer to a net exporter. But that would require a true policy shift. Since the oil shock of the 1970s, the export of domestic petroleum resources has been banned in the United States. Many companies also have an interest in keeping as much of the cheap natural gas in the country as possible, as it provides them with a competitive advantage over foreign competitors.
According to a study, lower natural gas prices last year created a benefit worth more than $100 billion for US industry. "The country has stumbled into a windfall on the backs of these entrepreneurs," says study co-author Professor Edward Hirs of the University of Houston.
And perhaps things will indeed improve substantially. The US government has identified a new deposit in Utah, although additional major advances in technology are needed to make extraction economically viable. The Utah deposit contains an estimated 1.5 trillion barrels of extractable oil, or as much as the world's entire proven oil reserves to date.
Russia on the Losing End
A building in the southwestern section of Moscow juts into the sky like a rocket. The architectural message of the headquarters of energy giant Gazprom, which towers over everything else around it, is clear: The only way is up. Until recently, there was still an overwhelming consensus that nuclear weapons and energy commodities like oil and gas are the two currencies that gave a country its superpower status. Russia, the world's largest exporter of natural resources, has both in abundance.
President Putin built his dominance at home and his foreign policy on Russia's wealth of natural resources. Oil and gas revenues make up about 50 percent of the national budget. The president needs Gazprom's billions in revenues to keep his supporters, mostly government employees, retirees, blue-collar workers and farmers, happy with expensive social benefits. Gas also plays a central role in the plan to expand Russia's sphere of influence into the former Soviet republics.
But now the American natural resources boom threatens Putin's dreams of an imperial resurrection of his country. It is already struggling with falling gas prices. Gazprom's operating profit shrank by more than 25 percent in the first nine months of 2012.
The Russians are now forced to give their customers, like Germany's E.on and Italian energy company Eni, discounts in the billions. Still, the Europeans are reorienting themselves. In the first three quarters of 2912, Gazprom sales fell by 43 percent in the Netherlands, 30 percent in Slovakia and 20 percent in France.