Natural Gas Boom Shifts Energy Balance of Power to US

A new technique being used to drill through a type of rock known as shale has led to a surge in domestic natural gas production over the last three years and enabled the United States to overtake Russia recently as the world's No. 1 producer of natural gas.

As a result, we are seeing a remarkable turnabout in energy geopolitics: as U.S. natural gas reserves have soared thanks to advanced drilling methods, Russia's goal of establishing a world gas cartel patterned on OPEC has collapsed.

How big of a development is this?

Think back to 2003, when America's demand for natural gas was outpacing supply. Production from gas wells on the Outer Continental Shelf had fallen by 50%, and there was no surplus capacity in the U.S.

Gas prices had doubled in less than a year, and scores of petrochemical companies, in need of cheaper gas, closed their U.S. plants and reopened abroad. Alan Greenspan, then-Federal Reserve chairman, warned that natural gas shortages could harm the U.S. economy.

To make matters worse, Russia began flexing its political muscle, using a dispute over gas prices with Ukraine as a pretext for curtailing natural gas shipments to Western Europe. And Russia, in cahoots with several other major gas-producing countries such as Iran and Algeria, opened a global office for natural gas.

U.S. experts saw the move as the first step toward creating an OPEC-like natural-gas cartel.

Now, fortunately for the U.S. and European countries that rely on Russia's natural gas, the situation has changed dramatically for the better.

Thanks to a breakthrough in drilling technology, involving the use of three-dimensional seismic imaging and hydraulic fracturing of shale rock, huge amounts of natural gas are being produced in New York, Pennsylvania, Texas, Louisiana and other states. Instead of declining, domestic natural gas production is booming to record-high levels (see chart).

If estimates hold up, energy experts say the shale gas that underlies large parts of the United States will be able meet our country's needs for the next 100 years. The Department of Energy expects shale gas to account for 50% of natural gas production by 2020 if not sooner.

What's more, the same drilling techniques for shale gas are now being used in several European countries, including France and Poland, to extract their own supplies. Both China and India have huge shale-gas resources. Geologists say shale gas is so plentiful in some parts of the world that it could meet global needs for several centuries.