Has shale saved America?

Despite many uncertainties about its scope and duration, the shale revolution will continue to insulate the United States from market shocks affecting the global price of both crude oil and liquefied (shipped) natural gas. Oil exporters such as Saudi Arabia have previously wielded a hugely powerful “energy weapon,” exerted with devastating effect after the Arab-Israeli war of 1973. And gas producers, most notably Russia, have sometimes exercised a comparable grip over the recipients of their piped supplies. But as the United States becomes increasingly self-sufficient in energy, it is acquiring, in equal proportion, more immunity from such actions, putting it in a position to exploit this to its own advantage. For example, until the advent of commercial shale in the United States around 2008-9, the adverse effects on the price of crude dictated heavily against tough measures on Iran. But since 2012 the United States has successfully supported EU sanctions on the flow of Iranian oil: these measures have drastically reduced Iran’s exports, slashing its revenues and punishing its economy without pushing global oil prices over $100 a barrel.

America’s breakout position in the shale revolution raises a number of strategic possibilities. For example, the United States could manipulate the price of energy for its political rather than narrowly commercial benefit. Future U.S. shale output could depress the market price of crude oil and liquefied natural gas and undermine the viability of other countries’ shale- (and conventional-) energy industries, which require well-defined break-even costs and clear margins. By doing so, the United States could maintain its clear strategic advantage as a virtually self-sufficient producer. Comparisons can be drawn to the Cold War in the 1980s, when Saudi overproduction depressed the price of crude oil and thereby depleted the Soviet Union’s revenues; or to Moscow’s decision, in 2010, to abandon the massive Shtokman gas field, the viability of which was undermined by sharply lower market prices. Of course, such an approach could damage America’s own shale industry, whose profits and margins would also come under pressure.