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Frack Attack
Shale Is America's Answer to Russia's Energy Weapon

Between the recent unrest in the Middle East and the ongoing conflict between Russia and the West, you’d be justified in expecting prices of one of the chief exports of those two regions—oil—to start creeping upwards. But that’s not happening, in large part thanks to the market-soothing effects of new supplies of North American crude. As the Telegraph reports, oil prices actually just hit a nine month low:

The International Energy Agency (IEA) cut its forecast for the rise in global consumption to just 1m barrels a day (b/d) this year due to near recession conditions in Europe and as pervasive weakness in the world economy disappoints…This comes as supply rises by a further 300,000 b/d beyond what was already planned. The warning sent Brent crude prices tumbling to $104 a barrel, the lowest this year. […]

The IEA said in its monthly report that the oil market seemed “eerily calm in the face of mounting geopolitical risks spanning an unusually large swathe of the oil-producing world”…Yet so far the rise in supply has overwhelmed any actual disruptions from crisis zones.

With crude prices so low, countries are stockpiling up, wary of continued supply disruptions in the near future. These developments are bad news for Russia on two levels. First, with the developing world stockpiling at such a brisk pace, countries are less vulnerable to one of Moscow’s biggest geopolitical weapons: cutting off energy supplies.

But the fact that oil prices aren’t soaring, despite turmoil in Iraq and Libya—in large part because of the supply boost from North America—must also worry the Kremlin, which the Telegraph notes “needs a price near $110 to balance its budget.” The shale boom is the American answer to Russia’s energy weapon, and it’s threatening the Russian economy.

Frack, baby, frack.

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  • TheRadicalModerate

    The US isn’t really set to be a large exporter of crude, and it’s even less prepared to export LNG. To its credit, the Obama’s FERC has granted a couple of licenses for new LNG export terminals, but given that there are currently virtually no LNG tanker export terminals (IIRC there’s a small one in Alaska, and that’s pretty much it), it’s unlikely that Europe is going to count on the US as an alternate source for natural gas until the infrastructure is there. We need to have a robust debate about the pros and cons of being a net seller of LNG on the world market (once you start, you probably can’t take it back later if you want to ensure domestic supply security), and, if we want this to be a real foreign policy tool, we need to be building terminal capacity like crazy.

  • Duperray

    Correct, in any circumstance US is not going to be a major exporter, just a market price stabilizer, which is not so bad. US gaz plays role in America countries where pipes can be deployed. The LNG cost barrier cannot be overcome and these export will eventually occur to face emergency situations: Present high Asia LNG prices correspond to Japan nuclear emergency situation. Within a couple of years, price pressure will drop there. China buying russian piped gas will not substitute Japan.
    Economics always has a hand over political perspectives.

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