The Political Punch of Shale Gas

There seem to be two kinds of views out there on the development of shale gas, which has already had a big political impact on supplying governments such as Russia.  On the one hand, we have the oracles of energy revolution declaring the dawning of a new age.  On the other, there is the more circumspect view, which also highlights fears that in the short term shale gas will push away or delay investment in LNG infrastructure and thus damage the potential for a future global spot market.  This latest one in the Wall Street Journal by Amy Myers Jaffe is definitely of the first view.

One of the biggest effects of the shale boom will be to give Western and Chinese consumers fuel supplies close to home–thus scuttling a potential natural-gas cartel. Remember: Prior to the discovery of shale gas, huge declines were expected in domestic production in U.S., Canada and the North Sea. That meant an increasing reliance on foreign supplies–at a time when natural gas was becoming more important as a source of energy.

Even more troubling, most of those gas supplies were located inunstable regions. Two countries in particular had a stranglehold oversupply: Russia and Iran. Before the shale discoveries, these nationswere expected to account for more than half the world’s known gasresources.

Russia made no secret about its desire to leverage its position andcreate a cartel of gas producers–a kind of latter-day OPEC. That seemedto set the stage for a repeat of the oil issues that have worried theworld over the past 40 years.

As far as I’m concerned, you can now forget all that. Shale gas willbreed competition among energy companies and exporting countries–whichin turn will help economic stability in industrial countries, and thwartpetro-suppliers that try to empower themselves at our expense. Marketcompetition is the best kryptonite for cartel power.