Saturday, March 31, 2012

Resources: Unconventional Resources: The Shifting Geographies and Geopolitics of Energy

Source: ISN

Unconventional Resources: The Shifting Geographies and Geopolitics of Energy

The emergence of unconventional oil and gas marks a break with several established trends in energy supply.

By Jonas Gr├Ątz for Center for Security Studies (CSS)

Due to their geographic location, unconventional resources contribute to supply diversity rather than concentration. Their production is driven much more by economics than politics. They also reduce the import dependence of some consumers, especially the US. Owing to domestic constraints, the EU has seized the new opportunities far less than the US and China so far. But as unconventionals reinforce global markets, they work to the advantage of all consumers in energy geopolitics.

There are some constants in the increasingly complex global energy system. There is little doubt, for example, that the Middle East will remain the world’s most important oil-producing region. But there is also change in the offing. Technological improvements, in conjunction with high prices, are sparking a boost of unconventional oil and gas production. The most visible effect of this trend so far has been the reduced import dependence of the world’s foremost petroleum consumer, the US. In addition, unconventional resources have enhanced the attraction of open market economies, which are otherwise being challenged on many fronts.

High oil prices may have profound negative effects for consumer economies, but they are also instrumental in pushing fossil fuel extraction towards new frontiers. Unconventional resources signify a partial victory of open market economies in an increasingly fierce geo-economic and geopolitical battle with the closed economies of the petro-states that are today’s major hydrocarbon producers. While the emergence of unconventional oil is driven mostly by price, unconventional gas extraction was enabled mainly by investment in new technologies. The rise of these technologies highlights the fact that while hydrocarbons may be ultimately finite, they are still more abundant than previously assumed. Access to energy supplies is thus not a zero-sum game, since high market prices have precipitated investment into technologies and resources that made unconventional supplies available.

Unconventional resources and technological advances change the international politics and geopolitics of energy: Together with ‘conversion’ alternatives for the supply of liquids, such as coal- and gas-to-liquids, unconventional resources help to feed an increasingly energy-hungry world that has not yet found sufficient alternatives to fossil fuels. What is more, they are found in other geographic regions than conventional reserves. The main political effect is that they enhance the prospects for cooperation of consumers, as they help to undermine the idea of energy supplies being materially highly constrained. In geopolitical terms, energy relations can be envisaged as an ongoing race between ‘pipelines’ on the one hand, and ‘super tankers’ on the other. The former represent rigid infrastructural links and can thus be used to segment markets and simultaneously reap geopolitical benefits. They are being advanced by land-based petro-states and embody their vision of a rigid link between supply and demand resting on a zero-sum concept of finite resources. The latter represent the increased flexibility of world oil and gas markets in the interest of consumers. As unconventional resources break the trend of ever-increasing concentration of supply, they tilt the playing field to the advantage of ‘super tankers’, disadvantaging ‘pipelines’.

However, as the unconventional story unfolds, new policy dilemmas are opening up. Like every industrial activity, extraction of unconventionals has negative effects on the environment. As extraction moves to new countries and regions, and as new technologies are applied, resistance may prove costly to overcome. This is especially relevant as extraction of unconventionals tends to take place in democracies, where negative effects may lead to vocal protest. As a result, domestic politics will become more important as a variable determining the prospects of unconventional supply. Dilemmatic choices will have to be made between reaping the economic and geopolitical benefits of unconventional resources and their effects on the environment and climate change.

This chapter analyses the impact of unconventional resources on global energy supply and the related geopolitical consequences. It will first look at the supply situation and the risks arising from new externalities. It will subsequently examine how the energy market’s three main consumers, China, the US, and the EU, are affected by the emergent trend and how each of them is dealing with it. By way of conclusion, the chapter will discuss what the interplay of these actors’ strategies implies for geopolitics, global markets, and issues related to the environment and climate change.

To access the full report, please visit the Strategic Trends Analysis website.

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