The U.S. Shale Gas Revolution and Its Implications for International Energy Policy

Abstract

The shale gas revolution has fundamentally transformed energy markets domestically and abroad. Rising production has led to falling gas and oil prices in the U.S., while Europe, in contrast, is paying four to five times more for its natural gas and becoming one of the biggest importers of U.S. coal. As recently as five or six years ago this turnabout seemed improbable, with many analysts calling for rapid growth in renewable energy investment as the best means by which to wean the nation from its dependence on imported oil. Even then, such investment seemed far-fetched as the liquidity crisis worsened during the 2008-2012 global recession, forcing the federal government to institute stringent fiscal and monetary stimulus to stabilize the financial market and institutions. Taken together, the shale gas revolution represents the maturation of industry-friendly policies started under President Bush and continued during the Obama Administration. These policies supported the introduction of advanced technologies such as hydraulic fracturing, tight-oil extraction, horizontal drilling, innovative industrial software and other digital solutions, which have allowed production companies to economically extract oil and gas from previously inaccessible or financially infeasible shale rock formations with breathtaking speed. Most tantalizingly, this is a story of the triumph of a combination of economics of energy (operating by its own rules of supply and demand), the power of government-funded research and development (R&D), and getting the relationship right between the government and private sectors.

Keywords: Shale Gas, Shale Development, Unconventional Natural Gas Resources, Natural Gas, International Energy Policy

JEL Classification: O14, O18, O19, O32, O51, Q33, Q34, Q37, Q43, Q55, Q56, Q57