The Geopolitics of Natural Gas: Report of Scenarios Workshop of Harvard University’s Belfer Center and Rice University’s Baker Institute Energy ForumCoauthors
Amy Myers Jaffe, Executive Director of Energy and Sustainability, University of California–Davis Graduate School of Management (formerly the Wallace S. Wilson Fellow in Energy Studies, James A. Baker III Institute for Public Policy, Rice University)
Hydraulic fracturing, or “fracking,” a technology for extracting natural gas and oil from shale rock formations, has generated heated debate, with questions raised over the amounts of water consumed during the process and possible contamination of groundwater supplies, among other concerns. Even though the environmental controversy is far from settled, the technology is racing forward in the United States, and the attendant surge in shale gas production over the past decade has caused what Meghan O’Sullivan, the Kirkpatrick Professor of the Practice of International Affairs, calls “the biggest shock to natural gas markets in a century.” Interestingly, she adds, “America’s natural gas boom is occurring at the same time that the world’s largest energy-producing region, the Middle East, is in a state of great tumult.”
O’Sullivan and her colleagues at the Kennedy School’s Geopolitics of Energy Project have joined forces with researchers at the James A. Baker III Institute of Public Policy at Rice University—formerly headed by Amy Myers Jaffe and currently headed by Kenneth Medlock —in a two-year study aimed at understanding how geopolitics can influence natural gas markets and how natural gas markets, in turn, can influence geopolitics. Jaffe and O’Sullivan are the lead authors of “The Geopolitics of Natural Gas,” an interim conference report from the collaborative effort they direct with Medlock. The project’s overall conclusions will be presented in a final report, due to be released by the end of 2013.
One fact that’s already evident, says O’Sullivan, is that “in today’s world, what energy resources are developed depends as much on political factors as it does on geology and technology.” Fracking is taking off in the United States owing to bountiful shale deposits, the development of effective extraction techniques, the availability of a high-capacity gas pipeline infrastructure, and a conducive political climate. “All of these elements have to be in place,” O’Sullivan notes. “Politics is a big factor in the equation, and that’s the focus of our study.”
The Harvard-Rice team relied on Medlock’s computer model, recently updated to include shale gas reserves, to produce a “reference scenario” that illustrates the interplay between global politics and natural gas markets. According to this scenario, shale gas production worldwide more than quadruples over the next two decades.
The United States becomes an exporter, rather than an importer, of liquefied natural gas. Russia and other former Soviet countries remain the biggest suppliers of natural gas, with North America close behind. Europe, having many sources to choose from, is suddenly awash in natural gas, and demand soars in China and India. By 2040, global consumption doubles, with natural gas replacing coal as the largest primary energy source.
The report relays various other scenarios that drew on the combined knowledge of 15 different country experts. The most optimistic case—involving an “extensive global shale gas revolution,” along with extremely liberalized markets—forecasts a manufacturing boom in the United States spurred by falling natural gas prices. Motivated by this success, Argentina moves to exploit its massive shale reserves, while Europeans begin chipping away at anti-fracking legislation. Meanwhile, the U.S. transportation fleet shifts increasingly toward natural gas–fueled vehicles, while Japan readies such vehicles for the export market.
In the least optimistic scenario, the U.S. shale industry is dealt a blow when 17 deaths in Pennsylvania are attributed to poisoned well water, leading to statewide bans on fracking. Coal consumption increases in the United States and worldwide, further boosting global carbon dioxide emissions. Growing evidence of climate change hastens new commitments to develop clean energy sources.
The group’s final report looks at seven politically based scenarios, using the Rice Global Gas Model to predict how gas markets will react to them.
One key lesson of these studies is that “geopolitics is affected by the trajectory of gas markets as much as it shapes that trajectory.” Expressed in other terms, individual country decisions regarding the use of natural gas resources can have profound international consequences. Or, as O’Sullivan and Jaffe put it, “The relative fortunes of the United States, Russia, and China—and their ability to exert influence in the world—are tied in no small measure to global gas developments and vice versa.” O’Sullivan promises that more findings will soon emerge from this joint venture.
- by Steve Nadis