Baker Institute to Russia’s Energy Monopoly: ‘If It Dies, It Dies’

In the biggest blow to Russia’s global power since the Italian Stallion landed an epic left-handed haymaker on Ivan Drago’s face, a new study from the Baker Institute [PDF] finds that America’s shale gas resources will play an enormous role in loosening Russia’s grip on global natural gas markets.

The study, funded by the U.S. Department of Energy, finds that shale gas production in the U.S. has already weakened Russia’s ability to wield an “energy weapon” over its European customers (p. 9), a trend that will only accelerate in the coming decades. As one of the authors of the report put it, “the petro-power of Russia, Venezuela and Iran is faltering on the back of plentiful American natural gas supply.” Shale gas production, according to the report’s findings, will decrease Russia’s market share by more than half — from 27% to 13% – by 2040 (p. 13).

But the Russian Federation isn’t the only one that this study puts down for the count. The authors also apparently wanted a piece of the New York Times, according to the news release, and delivered a solid uppercut to the Gray Lady’s questionable reporting on shale gas:

The Baker Institute study dismisses the notion, recently debated in the U.S. media, that the shale gas revolution is a transitory occurrence. The study projects that U.S. shale production will more than quadruple by 2040 from 2010 levels of more than 10 billion cubic feet per day, reaching more than 50 percent of total U.S. natural gas production by the 2030s. The study incorporates independent scientific and economic literature on shale costs and resources, including assessments by organizations such as the U.S. Geological Survey, the Potential Gas Committee and scholarly peer-reviewed papers of the American Association of Petroleum Geologists.

At this point, study co-author Kenneth Medlock III wasn’t ready to throw in the towel, either:

The geologic data on the shale resource is hard science and the innovations that have occurred in the field to make this resource accessible are nothing short of game-changing. In fact, we continue to learn as we progress in this play, and it is vital that we understand and embrace the opportune circumstances that shale resources provide. U.S. policymakers should not get diverted from the real opportunities that responsible development of our domestic shale resources present.”

Finally, the study notes several issues that could prevent this fundamental altering of geopolitics. Noting the “well-developed, competitive regulatory framework” (p. 15) that encourages shale gas production in the U.S. – a key component of which is hydraulic fracturing being tightly and effectively regulated at the state level — the authors conclude that ending or compromising this stable investment climate could deal its own body blow to domestic production, which in turn would allow states like Russia and Venezuela to control more of the global gas market.

Another potential roadblock is the proposal often floated in Washington, DC, to raise taxes on America’s energy producers. Noting that independent companies were the ones who truly pioneered the shale gas revolution in the United States, the authors conclude that these higher taxes — and resulting higher operating costs — would “greatly constrain smaller risk taking firms that engage in the kinds of investment programs that brought the shale play to fruition” (p. 16).

The safe and responsible development of America’s enormous shale gas resources clearly represents a massive economic and strategic opportunity, both in the near- and long-term. If there was ever any doubt about that, this report should cry out to America what Adrian yelled to Rocky: “You’re gonna do it!”


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