Shale gas and oil are natural resources globally present in the sedimentary rocks of Earth. Shale gas is contained in rock insufficiently permeable to be easily exploited and only the fracturing of these rocks liberates the gas. To do so, oil companies have to use unconventional methods such as horizontal drilling and hydraulic fracturing. This method is largely controversial due to its potential negative impacts on environment, especially for groundwater table, use of chemical products and huge quantity of water to fracturing the shale. So, and despite the huge reserves of shale gas, the debate on fracking leads most of the countries to forbid its exploitation for environmental reasons (for further information: What is shale gas?). The United States (US) is the only country to widely exploit this resource and is quickly expanding its production, with important economical and geopolitical consequences.

In this article, and despite its importance, we will not cover the environmental impact of fracking and instead focus on shale gas’ economics impact for the US, the global economy and to present how this new resource could reshape the geopolitical map.

Shale gas and economics

Although shale gas exploration in the US began around 2000, its extraction on a large scale started in 2008 and, as showed on the graph below, it is projected to become the main source of energy for the country.


The emergence of shale gas has major consequences for the American economy. The first one is the significant decline in energy cost both for companies and households. Since 2008, the electricity cost has fallen by 10% for households thanks to cheaper cost of gas for electricity plants. It represents a rise of available revenue of USD 1,200 a year per household. The impact is similar for manufacturing companies, especially chemical industry for which gas constitutes the main raw material.

Gas prices


After the peak of 2008 in energy prices, gas prices in the US sharply declined to two to three times their pre-2008 period prices. But, more importantly, prices splits with European and Japanese costs. This difference can provide an important industrial competitive advantage for the US economy.

In facts, cheaper energy prices have already born fruits in the US. According to studies from the IMF and the US treasury, 720,000 jobs have been created in the chemical industry in the US and industrial companies are relocating back to the US in order to benefit from this cheaper energy. This enables companies to reduce production costs and improve competitiveness, despite a labor cost higher than in emerging countries. Moreover, shale gas extraction by itself created around one million jobs in the country (article about Shale gas and the US economy).

Shale gas also contributes to the US economic rebalancing in several ways. Firstly, the decrease in electricity price allows to households to spend more on manufacturing goods or to save more. Secondly, the US reduces its energy importation and the “re-birth” of their industry leads to more exportations. Consequently, the US should able to reduce significantly their commercial deficit in the medium term (in 2012, the US trade deficit reached its lowest point since 1996 years). This will be more accurate from 2020, when the US is forecasted become a net gas exporter.

At the light of these facts, it appears that shale gas has been playing a major role in the US recovery since the 2008 great crisis.

The abundance of shale gas in the US also provides new opportunities for industries. An important one is based on the facts that shale gas can be easily liquefied and that the US will decrease its consumption of oil. Consequently, the abundance of gas at a low price could encourage the car industry to develop new natural gas cars, which are less polluting (gas is the cleanest of fossil fuels) and so take an advantage on its competitors.

Shale gas, and its transformation into Liquefied Natural Gas (LNG), enables to transport energy across countries and continents by pipeline and by boat. Currently, major American harbors are modifying their gas terminals to export, instead of import, LNG. The international trade of LNG can substantially modify the natural resources trade and thus geopolitics.

Shale gas and geopolitics

A quick look at the map below can give us an idea on how shale gas can reshape the geopolitics: it shows that future gas and oil exporters may not be the same as today.


Shale gas will modify the trade of natural resources in the way that the US, along this decade, will become less and less depend on foreign oil and gas until the country is expected to become a net exporter of gas in 2020. At this time, the US should be able to provide a cheaper gas than the current exporters (Russia and Middle Eastern countries) do. This situation represents a threat for these countries gaining more of their revenues from oil and gas industry. In the Middle East, natural resources exploitation is only the transformation of their “natural assets” into money, a “liquid asset”, without adding much value. If the money provided by natural resources is not invested to develop local industries, these countries will lose a large part of their revenue with the international development of shale gas. A loss of revenues for oil countries producers means no financial subsidies for local population and a potential weakening of social stability in countries already threatened by revolts during the Arab Spring. Moreover, the US being less and less dependent on oil and refocusing its strengths towards Asia, they could be more reluctant to intervene in the Middle East to preserve its fragile stability (Robert Kaplan: geopolitics of Shale gas and another article about shale gas and the Middle East and).


Then, the question becomes if we can expect China, the current second biggest consumer of mineral resources, to become a major player in Middle East geopolitics. It is difficult to imagine for two reasons. The first one is that China relies more and more on Russia and Central Asia to satisfy its oil and gas needs (although they still rely on Middle East for quite a high percentage of their imports). The second reason is that China itself owns the worldwide largest shale gas reserve and, in the coming years, it could be tempted to exploit in order to benefit from cheaper energy and, above all, to be less dependent on foreign oil and gas.

Even thought it clearly appears that shale gas constitutes a threat for the Middle East countries but the question is more difficult for Russia. Russia is largely dependent on its current natural resources but also possesses huge quantities of shale gas and oil. However the shift from conventional to unconventional extraction could be expensive for the country. For Russia, it seems that its economy and influence will largely depends on Europe choices. If Europe also adopts shale gas it will become difficult for Russia to find buyers for its gas and it will lose its influence in Europe and its former satellites. On the other hand, if Europe keeps forbidding shale gas extraction, the old continent will remain a major importer of Russian gas and a strong relationship between Europe and Russia could emerge. Nonetheless, while international relations are moving towards Pacific and East Asia, even a rapprochement between Russia and Europe seems unlikely able to give geopolitical influence of these countries in South East Asia.


Shale gas deeply modified the US economy and will certainly change the global geopolitics in the coming years. Still, this evolution will depend on the attitude of countries toward shale gas: will they decide to exploit it or not? The environmental impact weights heavily in this question and it is certainly reckless to start a large-scale exploitation without a good knowledge of its environmental consequences as well as with technologies not enough evolved to reduce the negative effects of this exploitation. Nevertheless, technology is quickly improving, the US is leading the way and economics imperatives will certainly convince governments to enter the shale gas market. Considering the European economic situation, shale gas is a way to revive the industry and to rebalance the trade in a more favorable way as it is doing in the US. The situation is similar in China; it is difficult to imagine this country sleeping on a bonanza that could enable her to reduce its energy costs and dependence as well as replace their polluting coal economy by a far less polluting natural gas economy. Last but not least, by entering the shale gas market, the US is getting a renewed competitiveness for their industry and other major countries, particularly Europe and China, will find it difficult to compete with the US without adopting the shale gas and oil.

Shale gas future will also depends on the ability to exploit all resources, which will require developing technologies to reach less accessible reserves (for French speakers, further information with this article) and will increase gas prices. Would price rises encourage developing new exploitation or would it make this energy less attractive?

Though, additionally to the profit and price question, several points remain uncertain about shale gas and its future prospects. Are the potential resources correctly estimated? If yes, is it possible to exploit them? For instance, shale gas can be located in places with low available water, without water fracking method is not possible. What are the real environmental consequences and how long time some governments will forbid the fracking?

These questions are critical and it will need time to answer then and know how far this new energy can modify economies and geopolitics relations.


  • What is shale gas and why is it important? U.S Energy Information Administration, December 5, 2012

  • The geopolitics of Shale gas, by Robert D. KAPLAN, Euractiv, December 19, 2012

  • Shale gas will transform geopolitics, by WU Sike, China-US focus, February 12, 2013

  • U.S Energy Independance, by Marc-Antoine COLLARD, Société Générale EcoNote n°17, May 2013
  • U.S : Becoming a LNG exporter, by Marc-Antoine COLLARD, Société Générale EcoNote n°19, June 2013
  •  What’s going on with shale gas in China (and Poland) ? by MACKENZIE Kate, Financial Times, July 9, 2013

  • What does America’s shale gas revolution means for China ? by Gal Luft, Journal of Energy Security, July 25 2013

  • America’s economy fired by shale gas revolution by LORIS Nick, World Review, August 5, 2013

  • Shale gas revolution will create winners, losers.  by Matthew LYNN, Martket Watch, The Wall Street Journal,  August 7, 2013

  • Gaz de schiste : premiers déclins aux Etats-Unis, by AUZANNEAU Matthieu, Oil Man chroniques du début de la fin du Pétrole, blog associated with newspaper Le Monde

About Nicolas Houilliez

Luxemburg based with strong analytical skills, I worked as market and strategy analyst in large multinational companies. Passionate about China, economics, geopolitics and finance.