Geostrategic Implications of Unconventional Oil and Natural Gas


130401_EnergyTomorrow_Piceance_Basin_Natural_Gas_Operations

Piceance Basin Natural Gas Operations

Commentary is produced by the Center for Strategic and International Studies (CSIS).

By Sarah O. Ladislaw, Maren Leed
Apr 1, 2013

U.S. oil and gas production is on the rise due to the remarkable surge in unconventional oil and gas development. The widespread realization of the economic, technological, and commercial viability of these tremendous oil and gas resources within North America and the potential for transferring this production success to other parts of the world with similar resources may alter the global energy landscape in several important ways. Speculation about the full extent of the geostrategic implications of this newly realized resource endowment runs the gamut: some analysts suggest that it will fundamentally change the geopolitical dimensions of energy that have prevailed over the last forty years, while others posit that the revolution will be short-lived both in terms of its production potential and resulting geostrategic impacts. There is even less consensus about what potential changes in energy relationships might mean more broadly for key international relationships and geopolitical dynamics.

Despite this uncertainty, more rigorous thought should be put toward examinations of possible futures and their resulting implications. Such exercises, while admittedly speculative, will help to clarify the areas in which policymakers should focus their attention, and in which they may be able to take actions to shape possible outcomes more favorably or to hedge against potential vulnerabilities. CSIS is initiating such an examination and looks forward to partnering with other interested stakeholders on what must be just one component of a broader consideration going forward.

The Energy Landscape

In order to gauge the strategic significance of these new energy resources, one must consider the unconventional oil and gas revolution alongside a number of other existing trends in global energy supply and demand. These include the decline of developed economies’ energy consumption due to slowdowns in economic growth, greater efficiency and increased reliance on alternative fuels, the post-Fukushima environment for nuclear energy generation, the investments being made in deepwater, arctic, and other frontier oil and gas resources, concern over environmental stewardship, climate change, and the desire for clean energy technologies, the rise of new and dynamic energy consuming countries with varied strategic interests and state-owned companies, the relevance of old institutions of governance and cooperation, and a host of other nontechnical issues. Moreover, the production of unconventional oil and gas resources is at an early stage and a great deal is still unknown when it comes to the long-term production profiles, business cases, and sustainability of these resources. Therefore, when it comes to extrapolating long-term trends from an energy phenomenon of only the last several years, it is difficult to be confident of what the future might bring.

The United States has always been a resource abundant country with ample energy, agriculture, water, mineral, and human capital resources and it has used those resources to fuel its economic growth. Over the last several decades, the size and pace of that growth has driven increased reliance on imported oil and natural gas. This growing import dependence and the reality of our vulnerability to the often volatile global oil markets (and the long-held view that import dependence and price volatility would only deepen over time) cultivated a notion that the United States was a relatively resource constrained and energy-insecure country.

Ever since the 1973 Arab oil embargo the United States—despite its standing as one of the world’s largest oil and natural gas producers, with abundant coal, hydropower, and nuclear resources, and some of the world’s most stable trading relationships with its North American neighbors Canada and Mexico—has been increasingly preoccupied with the geostrategic implications of its dependence on foreign energy sources, the interdependent nature of global energy markets, and the energy vulnerabilities of our key allies, especially in relation to the stability of global energy markets. The United States and other major energy consuming countries have reacted to these concerns by creating global energy institutions like the International Energy Agency, set up a system of global strategic stocks (including the U.S. Strategic Petroleum Reserve), promoted free trade and open investment climates for energy goods and services, removed price controls in the United States, protected sea lanes and trade routes, encouraged integrated energy infrastructure where possible, created a system of policies and programs to drive greater levels of energy efficiency, and began to invest more systematically in new energy technologies and sources.

Sarah O. Ladislaw is co-director of the Energy and National Security Program and senior fellow at the Center for Strategic and International Studies in Washington, D.C.

Maren Leed is senior adviser with the Harold Brown Chair in Defense Policy Studies and Ground Forces Dialogue at CSIS.

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