The Shale Gas Revolution and the Energy Security Strategy ー Based on the IEA World Energy Outlook 2012ー
January 30, 2013
Mr. Nobuo Tanaka
Former Executive Director, International Energy Agency
Global Associate for Energy Security &
Sustainability, The Institute of Energy Economics, Japan
The shale gas revolution of the US is about to change the world dramatically with significant consequences over energy security. Oil demand will increase in emerging countries, including China, India and ASEAN and competition for access to energy can be exacerbated. Demand for renewable sources will grow 80% by 2035, while that of nuclear energy will grow 60%. Continuous utilization of nuclear power is the global trend, even after the accidents at Fukushima nuclear power plants. Having said that, fossil fuels of oil, coal, and natural gas remains to be the major source of energy and accounts for over 80% of supply today. By 2035, it is estimated to stay around 75%.
The shale gas revolution unfolds in the US and has led to horizontal drilling and massive hydraulic fracturing. North Dakota is likely to become the largest oil-producing state in the US. International Energy Agency (IEA) predicts the US oil production (unconventional and conventional) to reach 11 mb/d (million barrels per day) by 2020 and to exceed that of Saudi Arabia or Russia. Currently 2 mb/d of oil is being exported from the Middle East to the US, but it will become unnecessary by 2035, making the US free from dependence on the Middle East. Some question whether the US continues to be committed to peace and security of this region under such circumstances.
Another major change in oil supply is the increase in oil production by Iraq, which is predicted to double by 2020 and increase further by 2035. The question is which country will buy such oil? China will import an overwhelming amount, thus a new energy silk road might be developed, a growing nexus of energy ties between China and the Middle East.
IEA deals with oil supply disruptions by releasing oil reserves to ensure smooth supply throughout the world. When I served as the Executive Director of IEA, the Libyan civil war broke out and we released 2 mb/d of oil in June 2011 for about 30 days. Such crisis will give serious damage to Japan. Oil price will rise and could turn the current account surplus into massive deficit. Consequently government bond prices and the yen will plunge, as Japan will lose trust in the international financial markets. Weaker yen will further push up oil prices, and eventually trigger economic crisis in the worst-case scenario.
The recent tragic incident in Algeria taught us the increasing role African countries play in the context of energy security in Japan. I believe investments in Africa will expand in the future.
Japan must forge strategic ties with Russia, which is an extremely important exporter of conventional energy. Russia aims at diversifying the East Siberian oil export markets to the Asia-Pacific region and to reduce dependence on the European markets. I believe they first want to export to Japan, before starting exports to China. China secures natural gas from Turkmenistan through pipelines, while it purchases oil from Kazakhstan and Russia. Myanmar is likely to be their future exporter of oil and natural gas. China must urgently secure new power sources to meet its rising demand.
As for the outlook on renewable energy efficiency and profile of major power generation sources in Japan, IEA forecasts that oil energy will increase largely during 2010-2015, followed by a gradual decrease. Renewable energy capacity will come to account for a quarter of the total generation by 2035. Nuclear energy will recover to 20% by 2020, and will decrease to 15% by 2035. Natural gas is estimated to account for a third of the total. Another outlook on electricity price shows Japan will have the most expensive rate in 2030, exceeding that of European countries that depend largely on renewable energy. China will have the lowest rate due to cheap coal, followed by the US with its cheap natural gas.
Developing countries will continue to depend on nuclear energy, including China, Vietnam and India. Japan is held accountable to disseminate lessons learnt from the accidents in Fukushima, to secure safety through preventive measures against man-made disasters. The issue of energy security in the 20th century was to secure cheap supply of oil for gas-powered vehicles. Today, in the 21st century, the point is how to secure stable supply of electricity for electric vehicles.
The EU countries are formulating a collective security system connected by pipelines and electric cables. For example, Poland which mainly depends on coal energy is networking with Sweden, using natural and nuclear energies, as well as France that relies solely on nuclear energy. DESERTEC project of Europe connects Middle East, North Africa and Europe through electric cables. ASEAN countries are working on their Power Grid plan.
Before closing, let me emphasize that Japan should address the issue of energy security from an international perspective, especially after experiencing the Great Earthquake and the Fukushima accidents. Networking with Russia or South Korea through pipelines can contribute to the security in Asia. I hope we can work together to encourage our government to take an international approach.