The shale gas revolution will affect not only the energy industry but gradually change the geopolitics of energy. The economic success of shale gas in the United States since 2000 may soon turn the world's biggest oil importer into a net natural gas exporter, and many other countries are vying to follow suit.

In May, South Korea's Energy Ministry set up a task force to explore shale gas reserves, trying to cut the country's high costs of imported LNG by using unconventional energy resources.

China, India, Poland, Ukraine and Japan, in an effort to cut their energy imports, are all racing to develop shale gas.

The urgent call for change among import countries is not merely due to the large sums they spend on importing energy, but also the political pressures the exporting countries (OPEC members and Russia) often exert on them.

Despite efforts by the importing countries to look for solutions, such as developing new energy, they are faced with harsh realities, one being that because the new energy is not particularly cost effective, it is unlikely to replace fossil fuels soon. And the nuclear reactor disaster in Fukushima, Japan, has halted many nuclear projects worldwide.

Nevertheless, current global geopolitics seemed to be unbreakable before the US shale gas revolution.

The existence of shale resources worldwide means many countries can increase domestic oil and gas production and cut imports. Some may even become exporters, the US being the most outstanding example.

Additionally, as shale resources are discovered, and as advances are made in developing the technology to exploit it, global oil and gas supply in general will continue to increase, and new exporters will emerge, loosening the monopolies that Russia and the OPEC members now enjoy.

In addition, the current natural gas pricing mechanism will come under challenge. Europe and Asia's natural gas import prices have long been linked to oil prices, and Russia and the OPEC members will have to make concessions as the demand for natural gas imports falls.

Research by Rice University in Texas shows that if the success of the shale gas revolution in the US can be replicated worldwide, the market share of gas from Russia in European countries will drop from the current 25 percent to 13 percent by 2040. And its market share in Asia will also fall with cheap US gas exports and local shale gas production in Asia.

That may come as a serious political and economic blow to Russia, whose oil and gas exports now account for about 25 percent of its GDP.

As an OPEC member, Saudi Arabia has also felt the pressure from the shale gas revolution. According to OPEC, the global reserves of shale oil are as high as 300 billion barrels, 40 billion barrels higher than Saudi Arabia's conventional crude oil reserves.

And the world's unconventional crude oil production will reach 3.4 million barrels a day by 2015, and 8.4 million barrels a day by 2035, of which production from the US and Canada will be 6.6 million barrels a day, more than 75 percent of the total. Saudi Arabia's current conventional crude oil production is 12 million barrels a day.

If losing an important customer is akin to a tragedy, watching the client becoming a direct competitor is even worse.

The new exporting countries led by the US are constantly developing new technologies to reduce the costs of unconventional oil and gas exploration. Additional supply will substantially cut global oil and gas prices, bringing challenges to Saudi Arabia.

It is estimated that the cost of its crude oil production is $88 a barrel if national expenditure on maintaining social stability is taken into account. And the crude resources are depleting. In this context, unconventional oil and gas, including shale oil and gas production, will have a direct impact on international oil prices.

If Russia one day is no longer Europe's largest natural gas supplier and OPEC members can no longer enjoy their dominant position in the global energy market, the question becomes: what happens to the world next?

The author is director of energy and power business at Martec Group, a US-based provider of strategic market research and consulting services.

(China Daily 08/03/2012 page7)