Fracking, oil sands reshaping global energy markets

A report released this week highlights how the vast reserves of natural gas unlocked by new fracking technologies have fundamentally altered the energy landscape.  The U.S. has upped its natural gas production by almost 50% since 2005, and that has sent a supply shock through global energy markets.

fracking-wastewater-524This supply shock was the subject of a report released Tuesday by the International Energy Agency (IEA), in which they describe the surge in North American fossil fuel production to be “as transformative to the market over the next 5 years as was the rise of Chinese demand over the last 15,” a bold prediction indeed.  The vast new areas of production in North Dakota, Texas, and Pennsylvania, just to name a few, have become reliable enough supplies to lower U.S. oil imports. Canadian tar sands also have been an important piece of the increased production in North America.  While the fate of Keystone XL will remain a bit of a mystery for the foreseeable future, Canadian development has risen more than fifty percent over the last decade, and will continue to do so regardless of connection points to the Gulf.

The IEA predicts that increased viability of investment in North America will divert exploration and investment in higher-risk areas, such as Africa and the Middle East.  The U.S. will continue to lower its imports of crude, which in turn will generate excess capacity from North American refineries.  This will exacerbate the supply glut, and likely continue to push down prices.

Another possibility pointed to by the report is the rapid expansion of fracking technology to heretofore unexplored areas.  This has yet to truly materialize.  China has been repeatedly signaling its intention to develop its own shale gas fields, and boosters still think it can happen, but pundits have been pointing to a lack of political-economic incentives, and the relative difficulty of development, as roadblocks.  South Africa has sought to develop their own shale gas fields in the remote Karoo area, but that has run up against even more than the usual opposition, with one of this year’s Goldman Prizes (known as the “Nobel Prize of environmentalism”) going to Jonathan Deal of South Africa, who has been described as an “anti-fracking warrior” in the Karoo.

Regardless of global deployment, North America will continue to chug along: the U.S. Department of Interior is poised to release a draft rule regarding new fracking development, which will provide certainty for developers going forward.  As North America becomes an important player in the global oil market again, the pressure to expand this development will only increase with time.