Feng Zhaokui

Honorary Academician, CASS

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by Feng Zhaokui

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Feng Zhaokui is honorary academician of the Chinese Academy of Social Sciences.
Jan 24, 2013

An energy source shift known as the “shale gas revolution” is unfolding in the United States. Shale gas production, which was hardly noticeable only 10 years ago, now accounts for about one-fourth of the country’s natural gas output. And the ratio is expected to reach 50 percent in 2035. Today a new energy axis is taking shape in the Americas, comprising proven shale gas deposits in Alberta, Canada, North Dakota and Texas of the US, the French Guiana and a newly discovered super-large reserve under the ocean near Brazil, promising a new rising oil-gas production center of the world in the foreseeable future. Because energy is a strategic resource and is inseparably linked to world politics as well as national strategies, any change in the world energy map will have a profound impact on global geopolitics.

Feng Zhaokui

Feng Zhaokui

Apparently the changing world energy map favors the US as a significant shot in the arm for the American economy. The shale gas industry is a massive and complex undertaking in system engineering of which most of the technological breakthroughs and applications took place first in the US. The achievements helped silence critics of shale gas exploration and production over environmental and water consumption and gave birth to a new industrial value chain characterized by innovation and technology-driven growth that also boosts employment and tax revenue beside returns from exports of technology as well as finished product. As the rising output of shale gas pushes oil price downward, it could bring about the “re-industrialization” of the USA that will not only benefit the country’s manufacturing industry but also likely attract manufacturers from around the world to invest. For example, Airbus now outsources the production of some aircraft parts to America and so do many other international conglomerates because of the relatively low energy cost. Then there is the potential to boost individual consumption by bringing gasoline price down with growing shale gas output. Some experts estimated that increased shale gas production may help US economic growth rise by 2.0 percent to 2.3 percent in 2020.

Energy is an important part of the material basis for human society. In today’s world, wind and solar power is still a long way from becoming a major component of energy structure of most countries in terms of electricity generation and heating, hence the so-called power in energy resources (ERP) still means power in traditional energy resources such as oil and natural gas, including control of energy resources and transport channels, and markets of energy resources. ERP is now a game-changing weapon in international politics to protect national interests, seize geopolitical power, maintain a say in international affairs and build up influence.

Currently the US is the sole country in the world with complete ERP — control on energy resources as well as their transport channels and markets. And the all-out development of shale gas production will no doubt strengthen its ERP and consequently its hegemonic status.

The racing development of unconventional oil/gas exploration and production in the US, or North America for that matter, will likely play a significant role in strengthening cooperative relations between the US and energy consuming Asian nations such as Japan, China, the republic of Korea, some Southeastern Asian countries and even India.

Japan, in particular, was forced to reduce energy consumption significantly after the massive earthquake on March 11, 2012 shut down 43 of the 54 nuclear reactors in operation, putting tremendous pressure on thermal power plants to increase electricity generation as much as possible and raising demand for oil, natural gas and coal imports dramatically. Natural gas was the most sought after for its superior environment-friendly and cost-effective quality compared with other traditional energy resources. Even though natural gas exports to Japan are profitable, the US still refuses to supply Japan with liquefied natural gas (LNG) because the two countries have yet to sign a free trade agreement. As a result Japanese energy companies have turned their eyes on unconventional fossil fuel resources such as shale gas in North America, which is regarded as a possible” energy treasure trove”, and are increasing investment in related development projects in the hope of forming a shale gas production in the US to export shale gas to Japan. That means Japan’s dependence on the US will expand from the current security alone to energy resources and probably food, too. Odds are that shale oil/gas will become an extremely important “political resource” and, given its expected impact on geopolitics, a “Pacific Rim energy supply chain stretching from Alaska, Canada, mainland USA, Australia to Japan will overtake the southern oil shipping route from the Middle East to Japan through the Malacca Strait and South China Sea in terms of strategic significance.

Feng Zhaokui is an honorary academician of the Chinese Academy of Social Sciences.