Today, almost every country’s foreign policy is largely based around the securement of oil, or known by its more theatrical name, black gold. America’s involvement in the Middle East has been exclusively due to its need to secure oil supplies for its economy and more specifically, the world’s biggest consumer of the juice, its armed forces.
However, things are slated to change in the upcoming decade or so. Shale gas and the technology of “fracking,” which is required to get this kind of natural gas out, is looking to make America energy self-sufficient in the years to come (helped with declining oil demand as of today). An energy self-sufficient America will change the dynamics of global geo-politics as we know it today.
Shale gas is now being pursued globally by almost every major developed and developing economy. India, only in the past few days, has decided to table its draft shale gas policy in front of the cabinet for discussion and final approvals. Delhi plans the first round of auctions of shale blocks by the end of this year, which will interestingly be in and around the time of the general elections.
However, prospects of a ‘shale revolution’ such as the one in America in all probability cannot be replicated in India, at least not in the near future. The policies that helped this to happen in the US have been in place there for almost a century. India is still in infant stages of allowing the kind of business freedom that we see in the US today. Along with policies, America also has millions of kilometres worth of gas pipelines already laid and ready to be used while India has only a few thousand kilometres. For example, India’s state natural gas company, Gas Authority of India Ltd (GAIL), has taken the option of natural gas to Bengaluru, but is unable to distribute it to potential customers due to non-existent pipeline infrastructure.
Along with this, crucial resources such as land and water will remain a challenge in the advent of shale here. In the US, one of the major factors contributing to the success is the access to private land ownership. Many highly successful shale companies in America are not huge conglomerates, but boutique start-ups with access to technology, land and water. All these three aspects remain big challenges for India, specifically land and water, with the latter being crucial in the technology of hydraulic fracturing or “fracking”. Currently, India has shale gas potential in areas such as Gujarat, Madhya Pradesh, Andhra Pradesh and the North East. The disputed territory of Sir Creek between India and Pakistan is also known to hold shale reserves.
When America does achieve energy self-sufficiency, it will lead to a geo-political pivot in crucial regions such as the Middle East, for whom, the US is the biggest export market for crude oil. Although it will take up to 2020 or beyond for US to get significant shale oil from its own shores, the black gold kingdoms of the Middle East will frantically look east towards energy hungry Asian economies such as China and India to cover the lost sales in the US.
Amongst all these expected changes, one country stands to lose the most. Russia, which today is one of the world’s leading natural gas producers, is slated to lose customers in Europe if countries in the continent find better alternatives in the US and Canada. Currently, Russia’s natural gas company Gazprom is the Kremlin’s main source of income. Some estimates suggest that Gazprom alone is worth over $350 billion, which according to some industry experts, is an undervalued amount and the company could be well worth above $550 billion (In 2011 Gazprom produced a mammoth 513.2 billion m3 of natural gas). However, Gazprom is vital to Moscow, and vital to current Russian supremo Vladimir Putin. The revenue the company generates is Russia’s bread and butter, taking care of the country’s bills for social benefits, state pensions, medical care etc. These vital services are crucial for Putin to keep social harmony and his position of power intact in a challenging political state.
Meanwhile, some experts believe that over the past few years, the so called “historic” ties between Moscow and New Delhi had become cold and till a certain point Russia had become “indifferent”. The indifference is due to various factors including New Delhi’s continuously growing relations with Washington. But the growing shale revolution in the West may force Moscow to look towards energy starved old friends such as Delhi and Beijing.
Moscow has had a free run in providing natural gas to Europe, especially during winters when supply peaks and heating in homes across the continent becomes essential. In the past, many countries especially from the east of the continent, have had strained relations with Russia over natural gas supplies. Countries such as Belarus, which is relatively poor compared to many of its neighbours, have seen their gas supplies cut off in the peak winter seasons due to payment tiffs with Gazprom, leaving thousands of people exposed to below freezing temperatures. Belarus and so on may soon have alternatives in the near future from others such as Germany. Although Germany does not have great shale potential as of now, it has invested significantly in American shale projects, allowing it to import the energy products to its own shores (currently US bans exporting of natural gas from its soil, but this is expected to change soon) and even supply other European states in the future (a recent article by Der Spiegel magazine on Russia’s dilemma titled ‘The Kremlin Is Alarmed’ is well worth a read).
If such a situation comes true, Russia and India may start a new era of ties between them. Although the relationship between the two countries is still in good shape, recent troubles in defence deals have soured the mood in Delhi and the attitude of Moscow has been questioned by the government internally.
The next decade will be an interesting watch on how (or if) the shale revolution changes the geo-political landscapes across the world. It will be difficult for from-scratch beginners such as India to capitalise on this new source of energy in a big way. However, it is not impossible with the help of correct regulations, incentives, policies and public support. In the coming time shale can become one of the vital energy sources and can re-write international politics.