Identified: The biggest losers from the U.S. shale revolution (and they include the Middle East and Canada)
Meet the losers from America’s shale revolution. They’re Algeria, Angola, Nigeria — and Canada! The African countries because they produce light crude with low sulphur content, just the type that comes out of shale formations in the U.S. Those countries have seen their oil exports to the U.S. halve in just two years. Canada because it is likely the U.S. will show a diminishing demand for Canadian gas. However, it is not all bad news north of the 49th parallel: for Canadian oil producers (unlike the solely gas ones), they have seen exports going across the border rise by 20% in two years.
Oh, and you can probably add the Middle East. Availability of more oil from U.S. shale formations, and therefore a weaker OPEC, could easily lead to a drop in oil prices to $90/barrel, or even $80, which would seriously damage welfare provision in a region already suffering from political unrest and facing the prospect of a huge number of young mouths to feed.
These are some of the conclusions in a new shale gas report from HSBC Bank (formerly the Hongkong & Shanghai Banking Corp).
The bank even sees in the present troubles in Syria a potent from the whole shale story. Having more of its own oil, the U.S. might decide to withdraw from Middle East involvement and that could draw in other international powers, as has happened in Syria.
The overall message, though, is that shale will not be quite the revolution so many have been expecting. HSBC said the U.S. energy sector has certainly had a shot in the arm but the impact on the broader U.S. economy is likely to be modest. And — elsewhere in the world — harnessing shale energy will be more evolution than revolution.
In fact, HSBC estimates that the impact of shale supplies, mainly cheap gas, will add no more than 0.3% a year to U.S. economic growth over the next 10 years. They point out oil and gas extraction account for only 1.5% of American GDP. That said, some industries will gain greatly from having low-priced gas: these include chemicals, plastics, metals, wood and paper producers.
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And the boom is spilling over the border. Mexican manufacturers are already benefiting from lower electricity prices thanks to imports of cheap gas from the U.S.
On the oil front, HSBC estimates that increased American output has freed up around 2 million barrels of oil a day for global markets from other producers. And, while the U.S. may not reap the sort of economic rewards some have predicted, it is one of the few countries to turn shale into a reality, even though some states — Maryland, Vermont and New York — have banned fracking altogether. They have been joined in this by France and Bulgaria.
Meanwhile, the report says China is struggling to marry its shale energy ambitions with its concerns about water supply (groundwater contamination being a real risk, and China is already facing severe water challenges). Poland’s Lubin Basin has turned out to have far less gas than expected, while opposition to fracking may prove to be a problem in densely-populated Britain.
“The U.S. has had a relatively easy ride: others will not be so lucky,” the bank says. “And the ’revolution’ sits oddly with the environmental concerns linked to carbon dependency, not to mention the methane emissions specifically linked to the shale industry.”
And now, taking a leaf out of my colleague Ty Dinwoodie’s book (and thanks to HSBC), here are a few key facts about shale:
- Nothing to see here, move along please: unconventional oil and gas is not new. Oil shale was used in Mesopotamia for road construction as long ago as 3000BC. The Athabasca tar sands in Canada were used in the 1700s by native Canadians to waterproof canoes.
- U.S. shale oil production now stands at 2.2 million barrels a day from vitually nothing a decade ago.
- Shale provided 5% of America’s gas in 2006. Now it provides 32%.
- The U.S. in 2011 overtook Russia as the world’s largest producer of natural gas.
- The Energy Information Administration estimates that, globally, there are 345 billion barrels of technically recoverable oil from shale.
- Oil: The top 10 countries in terms of shale potential are, in order, Russia, the U.S., China, Argentina, Libya, Australia, Venezuela, Mexico, Pakistan and Canada.
- Gas: The top countries in terms of shale potential are, in order, the U.S., China, Argentina, Algeria, Canada, Mexico, Australia, South Africa, Russia and Brazil.
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