(February 21, 2013) Shale oil boom means security.
This article was first published by the National Post.
To fight jihadists, foreign policy hawks have long promoted global warming legislation: If carbon taxes and conservation programs can get us off Middle Eastern oil, the hawks reasoned, oil prices will drop as demand drops and money for terrorist attacks will dry up. Out came global warming legislation touting its benefit for national security, such as the Climate Security Act of 2008, which promised deep cuts to America’s dependence on Middle East oil by 2050.
Those hawks should reconsider. Global-warming legislation has emerged as the single biggest threat to the West’s energy security and the single biggest boon to most of the West’s geopolitical foes. The game changers are shale oil. The U.S. has so much of it that Citigroup, in a report released earlier this month, states that in five years the U.S. could eliminate all oil imports from the Middle East and other hostile suppliers and become a net energy exporter. The U.S. has already halved its oil imports from 2006 levels.
Other expert bodies are equally bullish about the prospects of shale oil. The International Energy Agency forecasts that by 2017 the U.S. will overtake both Russia and Saudi Arabia to become the world’s biggest oil producer, and that by 2035 it will be able to eliminate almost all oil imports, including from Canada. PricewaterhouseCoopers (PwC) believes that U.S. shale oil production could reach four million barrels per day by 2035, more than triple the U.S. government’s official estimates. This has been an overachieving industry, it notes, with a torrid 26% per annum growth rate to date and an estimated 33 billion barrels in the ground, up dramatically from the 2007 estimate of just four billion barrels.
The global prospects — estimates of recoverable shale oil reserves have climbed to as much as 1.5 trillion barrels — change the game again. PwC believes that the gush of oil that the globe will be seeing will dramatically lower oil prices, possibly by US$50 a barrel, boosting the global economy by as much as US$2.7-trillion a year by 2035. The biggest winners of this shale-oil fallout are India and Japan, whose GDP could rise by an extra 7%, followed by the U.S. and the eurozone, which could see extra 5% rises.
But there are also losers. Russia and the Middle East oil exporters “could see a significant worsening of their trade balances by around 4% to 10% of GDP,” PwC says. According to Citigroup, with shale oil added to the world’s existing conventional and tar sands supplies, oil prices could drop below the break-even levels that many countries need. Russia may not be able to balance its budget. The picture for “Venezuela is pretty bleak.” Some countries risk becoming “failed states.”
Put another way, the democracies all win, the dictatorships and authoritarian states mostly lose. Business as usual would end for many of the bad guys. Iran, considered the world’s chief financier of terror, would need to scale back its nefarious activities. Venezuela, which finances anti-American activities throughout Latin America, would likewise be curbed. Saudi Arabia might not be able to finance the vast complex of mosques and madrasas — many thought to have radicalized terrorists — that it supports in Pakistan and in the West. These would be welcome restraints — according to a Gallup poll released this week, 96% of Americans consider preventing international terrorism to be their top foreign policy goals. With almost equal passion, Americans desire to be secure in energy.
None of the benefits to the West of abundant energy supplies and low energy costs — whether in curbing terrorism, feeling energy secure or spurring economic prosperity — are cast in stone, however. If governments intercede with climate-change regulations the coming oil revolution could be snuffed out in its infancy, notes an HSBC study. The U.S. administration wants an atmosphere limited to a carbon concentration of 450 parts per-million, an amount that would allow only one-third of the world’s current proven reserves to be burned. Numerous oil projects — those being developed at more than US$50 a barrel — might well be cancelled. All told, HSBC warns, oil and gas majors could lose up to 60% of their market value — their reserves would become “unburnable” — in a low-carbon world.
Because HSBC sees the low-carbon scenario as credible, it advises its clients to be wary. “In our view, investors should focus primarily on companies with low-cost future projects,” it states. “Capital-intensive, high-cost projects, such as heavy oil and oil sands, are most at risk under our scenario.” PwC and Citigroup also note that their projections would be affected by environmental factors, as does OPEC in its February report. As do environmentalists, who are doing their utmost to lobby for a low-carbon world. Says Post Carbon Institute’s David Hughes, author of a study released this week of shale and other energy technologies, “the projections by pundits and some government agencies that these technologies can provide endless growth heralding a new era of ‘energy independence,’ in which the U.S. will become a substantial net exporter of energy, are entirely unwarranted based on the fundamentals … these exuberant forecasts will prove to be extremely difficult or impossible to achieve.”
To date, those forecasts are being achieved — in fact they’re being exceeded. Because curbs on fossil fuels and government-funded renewable energy projects have proven to be ruinously expensive, and because the doomsayers’ projections consistently fail to materialize — the chairman of the United Nations IPCC this week acknowledged that global temperatures have been at a standstill for 17 years — the broad public has balked at sacrificing the economy for dubious environmental benefits. That balk will only become stouter as the public realizes that climate-change regulations thwart both its desire to be energy secure and to fend off terrorist attacks.
Lawrence Solomon is executive director of Energy Probe and the author of The Deniers.
For the PwC report on shale, click here.
This article was first published by the National Post.