Less than a decade ago many people were talking about how we will be running out of oil soon. Many politicians and experts were constantly spouting “peak oil”. Serious faces in reputable conferences were asserting that it was obvious that the world production of oil had peaked and would be decreasing. The few dissenters were called naive or “market fundamentalists”.
Žilvinas Šilėnas
© DELFI / Kiril Čachovskij

In fact, claims about “peak oil” have been popular since the 19th century. Even in the 1970s many serious people were convinced (and some of them still are) that we were running out of oil. Like in most cases regarding the future of humanity, the pessimists were wrong.

The shale gas (and oil) revolution is a perfect example of how human ingenuity and freedom to act can solve any problem. Hydraulic fracturing has been around since 1950. However, only recently a couple of key technologies came together, i.e., horizontal drilling (drill two kilometers down and then two to the right) and development of proppants (i.e., sand and similar particles that keep fractures open and allow for gas to be collected) made shale gas a massive success. This allowed the US to become the new energy superpower.

This revolution is happening so fast that many still do not grasp it. Five years ago, many in the US planned to build new LNG import terminals. Now, however, there around 30 applications to build export terminals (even though experts think 4 or 5 will be built). The USA already outproduces everyone else in oil. Natural gas is already three times cheaper than in Europe and four times cheaper than in Asia. Energy-intensive industries, chemical industry is relocating back to the US. If 5-6 years ago there were no new plans for chemical plants, now there are around 150 planned.

The USA as a new and reliable supplier of gas can upset Russia’s strategic place in the world. Shale gas from the USA can reduce prices in Europe even if not a single cubic foot is delivered. The drop in prices might occur through potential competition and the drop in world prices. To put it simply, even the fact that now there is an alternative supplier may drive prices down.

Of course it's not all that simple. Gas from the USA might flow not to Europe, but to Asia, or to any highest bidder. Even the thought that someone has an obligation to supply us with cheap gas is faulty. Americans are friends but they will sell their gas for market prices because real friends are like that. Other “friends” might be selling oil and gas at subsidized rates, but usually they want more than just friendship.

Shale gas revolution has a couple of lessons to teach. First, while Europeans are preoccupied with Gasland , YouTube clips about burning tap water, and protests on the other side of the Atlantic, real problems are being solved. What future awaits Europe if even the most rational and pragmatic country – Germany – de facto decides to get rid of nearly all sources of energy – coal, nuclear and gas? What will supply energy and feedstock for industry? Photovoltaics?

Second, Lithuania could also have participated in this revolution, not just watch it from the sidelines. Chevron was coming in with real investment and real advance payments to the budget. The fact that a couple of otherwise undistinguished members of parliament carrying “scientific” flyers that simply said “Shale gas = death” managed to sow doubt in the government is sad and infuriating. In that period the government performed not unlike the government of Zambia, which refused to accept food aid during the draughts and famine of 2002; the government allowed to be convinced by western green NGOs that the food-aid contained GMOs. Actually, green NGOs manage to exploit fears and grievances rather well. Even in Lithuania, besides the anti-shale hysteria, there was a lot of the anti-American rhetoric as well.

The world is experiencing a real revolution. A revolution driven by real sources of energy and affordable prices. Shale wells are being drilled with profits, not subsidies. It is commendable that Lithuanian government finally came to its senses and is inviting investors to exploit shale gas in Lithuania. However, we are paying for the past mistakes. And these payments are in USD, not Zambian dollars.

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Žilvinas Šilėnas is president of the Lithuanian Free Market Institute

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