By LAWRENCE SOLOMON, Mar 30, 2012 –Financial Post
Middle East will go back to being an obscure backwater
Today, the Middle East is in the news daily — we hear of strife in Syria, in Iran, in Israel and Palestine. Ten or 20 years from now, conflicts in the Middle East will count for less in the world’s scheme of things, just as the daily conflicts that now occur in Africa get short shrift, despite Africa’s far greater loss of life. Twenty years from now, the Middle East could be about as important as it was at the turn of the previous century — before its oil was discovered — which was not very important at all.
The Middle East will attract scant attention in future, not because the region will have run out of oil — it will have found much more — but because the rest of the world will also be awash in oil. As supplies increase, oil depreciates in price, as does the political value of its purveyors.
To see the future of oil, consider the present of natural gas. Until recently, many thought the West was running out of gas — most of the easily accessible natural gas finds were being depleted, making the West reliant on ever more distant, ever more difficult reserves to exploit. The U.S., the world’s biggest natural gas importer, began to build ports to receive liquefied natural gas from distant continents in the expectation that it couldn’t import enough from Canada and Mexico.
Then everything flipped. New technologies emerged to extract gas from shale and other rock formations. Because these so-called unconventional technologies — fracking is the best known among them — proved cheaper than obtaining gas from the harder-to-find “conventional” sources, and because shale gas is plentiful, the unconventional became the norm. Thanks to fracking, the U.S. has suddenly become the world’s largest producer of natural gas, creating a massive glut that has more than halved the price of natural gas. Those liquefied natural gas ports that the U.S. was building to import gas will now be used to export gas.
A glut will soon also materialize in Europe, another major natural gas importer, where massive finds of shale gas in the U.K., in France, in Poland, in Ukraine and elsewhere will be slashing the cost of energy. So too with China and other major energy importers — the world is now awash in shale gas and will remain so for many decades, if not centuries.
The oil story is following a script similar to that of natural gas, with “unconventional” sources of oil overtaking distant, harder-to-exploit conventional sources. Until recently, “unconventional” mostly meant oil from Canada’s plentiful tar sands, which made Canada the single largest supplier to the oil-dependent U.S. No longer. Unconventional now also means shale oil and oil from other rock formations, much of it in the U.S., which has by far the world’s largest store of shale oil. The U.S. has become the world’s fastest growing oil and gas producer, it will soon be self-sufficient in oil and it is already a net petroleum product exporter.
China, another major importer, may also become an exporter, given that it has the world’s second-largest store of shale oil. All told, some 38 countries in every continent in the world have 4.8 trillion barrels of shale oil, making oil a ubiquitous commodity that gives every region of the world the wherewithal to be energy self-sufficient.
With the world awash in oil and gas, and Western nations no longer dependent on the energy exporting countries of the Muslim Middle East, the countries of the Middle East will revert to being seen as exotic and backward curiosities in the eyes of Westerners, as they have been through most of the last 500 years. Accelerating this diminution in status will be a likely collapse in oil prices.