Despite the North American shale revolution’s transformation of global energy dynamics, the United States is unlikely to disengage completely from the Persian Gulf because other nations still depend on the region and it will still affect the world’s oil prices, according to a draft report presented to the North Atlantic Treaty Organization (NATO).
In an 18-page report, Jeppe Kofod, a Danish lawmaker and that country’s general rapporteur to NATO’s Parliamentary Assembly, told the alliance’s Economics and Security Committee that shale development also provides an opportunity for the West to improve its ties with Russia.
“The United States is beginning to generate a tremendous competitive advantage because the shale glut has driven down energy input prices in manufacturing, conferring very important benefits upon firms positioned to exploit price falls,” Kofod said. “In essence the fall in gas prices has been an enormous positive stimulus to the economy and this is likely to persist as long as energy price differentials do.
“If this price differential persists over time, even greater levels of inward investment would be likely. European manufacturers would then face the twin challenges of competing against low-cost labor in Asia and low cost energy in the United States.”
Kofod said the U.S. was certain to change the way it views the Middle East, and particularly the Persian Gulf, as shale development continues.
“This could have implications for NATO over the longer term,” Kofod said, adding that NATO “is premised on the notion of shared security interests and outlooks. One can imagine that a significant divergence in energy security perspectives could begin to erode this foundation.
“That said, oil markets are fungible and what happens in one market will have an impact on the global market. For this reason, the United States will likely continue to have a strong interest in the Persian Gulf both for reasons of energy security and for general security. But [NATO] will need to conduct a sustained dialogue on these matters in the future.”
In April President Obama’s outgoing National Security Advisor Tom Donilon said flush U.S. oil and gas supplies have improved energy security and given the country more leverage around the world, but he said trading with other countries remained paramount (see NGI, April 29). The surge in domestic production “does not in any way imply that the U.S. should retreat from the world,” Donilon said.
NATO may need to consider cooperation with India and China to keep the sea lanes open in the Persian Gulf, especially if the two emerging economies increase their reliance on the region’s oil, according to Kofod. He said it was unclear if shale development would catch on in Europe as it has in North America. He cited Europe’s lack of drilling infrastructure, uncertain regulatory and tax frameworks, insufficient drilling capital and a lack of skilled workers as roadblocks to the industry growing quickly.
“These social, structural, institutional and environmental challenges, for the moment, are slowing down the development of unconventional gas and oil industries in Europe,” Kofod said. “This could ultimately result in a serious competitive disadvantage for those parts of Europe wedded to long-term gas contracts and thus compelled to pay structurally higher electricity prices than in the United States. These complex developments are adding a high degree of uncertainty to the global energy picture and this uncertainty could begin to impinge on long-term investment decisions including investment in critical pipelines.”
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