The Shale Revolution Isn't Just About Cheap Energy, It's Changing Geopolitics

Wednesday, May 08, 2019

Mark J. Perry | Washington Examiner | May 8, 2019

The new buzzword in the energy industry is "geopolitics." The role of America’s oil and natural gas companies has never been more consequential in shaping the global political order. If history is a good signpost, the change being driven by our nation’s energy industry will have a significant worldwide impact on technologies and policies that will last for decades.

As a free-market economist, count me among those who are buoyed by America’s emergence as the dominant oil and gas producer in the world. This is a welcome development in two ways.

First, the case for expanding natural gas production in the global effort to reduce greenhouse-gas emissions is quite promising. Second, and more importantly, the export of petroleum products and especially liquefied natural gas is helping Europe break Russia’s grip on its energy supply and recognize the reality that there are some things private markets do better than governments.

New drilling techniques have allowed U.S. oil production to soar over the past decade to new record highs, enabling our country to become the swing producer in the global energy market, undercutting the ability of OPEC to influence global oil prices. At the same time, the U.S. is now a major supplier of natural gas to countries like China and India that want to curb air pollution from coal for power generation.

That’s just the beginning. The dramatic growth in exports of natural gas by pipeline to Mexico is one of the most promising developments in strengthening Mexico’s economy and checking emigration to the United States. This has been made possible by the shale revolution, which has unlocked massive new supplies of natural gas, and the construction of new pipelines to carry natural gas from the prolific Permian Basin in Texas and New Mexico.

Geopolitically, the most important regional market for U.S. oil and gas is Europe. Since July 2018, exports of LNG to Europe from the U.S. have increased by an amazing 272%. This stunning surge has allowed the U.S. to assume a strategic position never imagined before — a counterbalance to Russia’s natural gas. Russian gas usually is cheaper than U.S. sources, but even the availability of American gas helps countries like Ukraine and Lithuania with leverage. American gas is weakening the geopolitical influence of Russia in Europe, which has relied for too long on Russia’s energy supplies.

Already, huge benefits from the U.S. shale revolution are reaching consumers in this country and abroad every day. Sustained lower oil prices are contributing to economic stability in many parts of the world.

As the price of oil in the U.S. tumbled from above $100 per barrel in 2014 to below $50 per barrel a year later, consumers saved hundreds of dollars. The daily cost of driving, for example, fell by half. Although oil prices have risen since then, they remain relatively low, thanks to a remarkable increase in U.S. oil production — by more than 32% in just the last two years to a new record high of 12.3 million barrels per day at the end of April.

The idea that the American shale revolution could provide significant geopolitical gains is not as fantastic as it might sound: European countries that currently rely heavily on Russian natural gas are now building terminals, pipelines, and other infrastructure to make use of America’s LNG, creating a powerful push to reduce energy dependence on Moscow. That’s why the benefits from the surge in U.S. oil and gas production pose such a threat to Russian President Vladimir Putin — and represent such a huge step forward in creating thriving economies that allow citizens to take greater control over their lives.

Mark J. Perry (@Mark_J_Perry) is a contributor to the Washington Examiner's Beltway Confidential blog. He is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan's Flint campus.