The “shale revolution” has stimulated tremendous production of natural gas in the United States. The technological developments in US have allowed the energy companies to access oil and gas from shale rock by a process known as hydraulic fracturing (fracking) which made the production of gas less expensive. The notion of U.S. oil independence has been of great importance in U.S. since the first oil crisis in 1973 especially in cases of major wars, when the disruption of foreign oil supplies could endanger the military effort or the country’s self-defence, the energy boom will make security objectives easier to achieve.
Some sources like the International Energy Agency (IEA) predicted that the United States will become the world’s biggest oil producer and exporter of shale gas in the form of liquefied natural gas (LNG) by 2020 and energy self-sufficient by 2030 by overtaking Saudi Arabia and Russia and will become world’s bigger supplier of hydrocarbons by 2020.
America’s progress in revolution:
Natural gas production in US increased between 2005 and 2012 by one quarter, 687 billion cubic metres of natural gas was extracted in 2013, overtaking Russia, as the largest producer. IEA assumes that production of natural gas in the United States and the NAFTA region as a whole (United States, Canada and Mexico) will increase continuously at an annual rate of 1.1 percent until 2035. But due to higher extraction cost than realised prices, the American shale gas industry has been experiencing a market adjustment process for past three years.
One development in US gas production has been the satisfied domestic needs through pipeline that connects NAFTA gas market. Consequently, LNG imports to the United States fell to one tenth and total natural gas imports fell by more than 30 percent between 2008 and 2013. Interestingly, United States purchased gas which was 3 percent of total imports in 2011 and because of revolution there have been extreme fluctuations in gas imports from Qatar during the past ten years.
A bonus of the shale gas is coal displacement by shale gas in U.S., finding its way overseas particularly to the European Union, India and China. Shale gas is also expected to enhance the US’s energy security, while helping to reduce CO2 emissions and greenhouse gas pollution having lower emissions intensity in electricity production than that generated by burning coal, also benefitting country’s economy by making available cheap energy, revitalising prospects for growth. But there are growing concerns about the scale and scope of the extraction process and its environmental impact.
Source: US Energy Information Administration (EIA)
China, the world’s second largest oil importer after US has world’s largest Shale gas reserves. Currently China shale gas/oil production is very little but given china’s fast growing economy and huge demand for energy, it can never ignore its indigenous resources. Shale gas has been listed as a priority in China’s 12th five year plan (2011- 15). U.S. and China stand to benefit from the prospect of greater energy independence.
Impact of U.S. shale gas revolution over Arab Nations:
Since the 1980s natural gas has been crucial for Saudi Arabian industry. But given that recent efforts to expand gas production have not been a success story, future difficulties must be expected. Big loser of the shale revolution was Qatar as it lost at least the major North American market in the longer term. Qatar currently possesses 150 billion cubic metres of annual LNG export capacity, has 90 percent of its exports (until 2020) are secured via sales and purchase agreements. Qatar exports to all the regional gas markets, also enjoys a special position due to its low production costs.
The success of the shale gas development in the US is attributed to a number of factors such as geological factors, tax exemption, and the availability of efficient industry service that might not exist in other countries. Therefore, there remains strong possibility of absence of such favourable conditions outside the US, especially in western European countries, also the service industry related to horizontal drilling and hydraulic fracturing are not as advanced as in the US.
Opposition to the exploration of shale gas in European countries due to environmental damage is an obstacle. Also, Governments will be sole beneficiary from investment in shale gas and not the landowners as in the US. The relevant technologies (such as horizontal drilling and hydraulic fracturing) are subject to intensive inspection by local research institutions in Europe, unlike in the United States, to reduce their negative effect on the environment.
The Problems Looming over U.S. Shale gas:
The inevitable rising costs of services, labour and pipelines, caused by inflationary pressure from the frenetic activity throughout the shale/tight oil and gas sector.
If the shale gas revolution does not succeed in the US or if it does not make much progress, investment in future gas supplies will be less than required. But, if the US shale gas revolution continues to prosper and is replicated elsewhere, the reduction in investment will not have a significant impact leading to a prosperous future with huge amounts of cheap natural gas for consumers. On the other hand, failure of revolution to meet expectations, natural gas reservoirs will face significant restrictions and this dilemma will be solved by market through supply and demand and to revive investment in the production by increasing price.
In the field of energy, shale gas will most probably bring a revolution if it is replicated elsewhere outside the US, limited by factors such as:
- Extraction cost of shale gas compared to the conventional natural gas is high.
- Environmental damage caused due to hydraulic fracturing in shale gas production.
- Because of the rapid economic growth in many countries in Asia, demand for conventional energy products (oil and gas) also increased.
This revolution emphasizes production volumes not the cost of that production. It claims success based on resource size but not reserves. The focus is not on the cost of technology but only on the technology that makes the plays possible. A picture fulfilling the aspirations of American energy independence and economic growth is painted and accepted by shale gas story.
Shale revolution is a reality that must not be ignored and countries like UAE must be ready to face any outcomes as a result of this revolution. Nations have to be prepared for any financial implications from Shale revolution and among all Middle East and GCC countries, only UAE look like the best prepared nation. But, still there is need for more careful analysis and research to avoid any undesirable circumstances from falling oil prices or geopolitical risks.
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Namrta graduated from National Law Institute University, Bhopal. Currently, she is pursuing LLM from the same university. She works as a content writer for TA.
 ‘Fracking’ consists of fracturing of various rock layers by a pressurised liquid.
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