The Coming Shale-Oil Revolution? :: Aymenn Jawad Al-Tamimi

NB: Original title was "The Coming Oil-Shale Revolution?", and the version of the article here differs somewhat from what was originally published. To see the original text, please follow the link but read Update II first.

Recently we have seen the emergence of reports on a potential breakthrough in shale oil extraction technology. Traditionally, extraction of shale oil has required the use of a method known as "fracking," or "hydraulic fracturing" (to use the more technical term).

Hydraulic fracturing, however, has raised concerns because of issues such as contamination of groundwater and air pollution, besides the large amounts of water required for the process. The high water usage is particularly problematic in the Southwestern states that contain significant quantities of the United States' shale oil reserves and are under water stress owing to drought in recent years (the largest reserves are to be found in North Dakota).

Nonetheless, companies such as Chevron are now looking into the use of propane gel rather than water. Not only does this method require no water, but it also makes more sense from a technical point of view. As one former Halliburton Co engineer pointed out, "It's an ideal liquid to crack the rock open with because it does not damage the rock like water would." Accordingly, this pioneering process, despite some worries over propane gel's flammability, is increasingly being given the green light by regulators in Canada and the United States.

In light of these developments, the chief executive of Saudi Arabia's state-owned oil company- Aramco- has come to acknowledge that the development of large shale oil reserves in North America looks set to shift the monopoly over global energy supplies increasingly away from the Middle East. Indeed, Saudi Arabia has now halted a $100 billion expansion program that aims to expand Saudi output to 15 million barrels per day (bpd) by 2020.

Meanwhile, China is expected to be producing 1.1 million bpd of unconventional oil by 2035 (as opposed to 6.6 million bpd from the United States and Canada), and a petroleum firm has announced the discovery of significant shale oil reserves in Argentina.

Naturally, the following question arises: Are we finally moving into an era of complete energy independence from the Middle East and OPEC? If so, what are the implications?

As regards the former question, there is still one sign that appears to point to uncertainty. Despite anticipated increases in shale oil production, the fact remains that conventional oil will always be much cheaper to extract and use. Linked to this point is the International Energy Agency's recent report that predicts Iraq will be the largest contributor to the growth in global oil production over the next 25 years. Iraqi crude, like that in Saudi Arabia, is perhaps the least expensive oil to extract in the world at only a few dollars per barrel.

Since state-control (which still exists) over the Iraqi oil industry and international sanctions have meant that for many years Iraq has produced oil largely for domestic consumption, there is still potential for exploration and discovery of new reserves in the country, hence, for instance, the recent exploration deal signed between ExxonMobil and the Kurdistan Regional Government in Iraq.

Since the 2003 invasion, Iraq has been able to secure numerous contracts with foreign firms in an effort to undergo a massive expansion in production for the international market, and output can only be expected to increase over the coming years. Peak oil for Iraq is not expected to occur until at least 2036.

Nonetheless, questions have been raised over export capacity hindered by outdated infrastructure. Perhaps paradoxically, the increased oil revenues for the Iraqi government mean that Baghdad is unlikely to shift towards liberalizing economic reforms, which in turn will continue the problem of excessive bureaucracy that impedes reconstruction and updating of infrastructure.

In any case, regardless of whether the West achieves energy independence from the Middle East, Saudi Arabia's profits (as well as those of Qatar and the United Arab Emirates) from the oil industry will probably diminish in light of competition from Iraq and shale oil across the world. In this context, commentators will no doubt be wondering if these developments will mark a decline in Islamism around the world.

In fact, what Daniel Pipes terms the "Islamic revival" coincided with the surge in oil prices in the 1970s and 1980s, and so many analysts have drawn a major link between the two events. End the oil dependence, so the reasoning goes, and Saudi Arabia will be exhausted of petrodollars to fund and spread its Wahhabi ideology.

However, I remain skeptical of such claims, which appear to reduce simplistically the growth in Islamist ideology to a single cause. Of course, funds from Saudi Arabia have led to an upsurge in the Wahhabism in countries like Bosnia, where an individual influenced by the Wahhabi movement growing in Bosnia- Mevlid Jasarevic- opened fire on the American embassy in Sarajevo.

Nonetheless, Islamism is ultimately a problem rooted in questions of "identity and circumstance" (as Pipes puts it), and in the age of mass communication, it is much easier for those who draw on broad elements of traditional Islamic theology to justify doctrines of jihad as offensive warfare and imposing Islamic law to attain success in winning over peaceful Muslims to their causes.

Moreover, we see that in Egypt with the Muslim Brotherhood, Pakistan with its numerous Islamist movements, Tunisia with its an-Nahda movement, Yemen with al-Qa'ida, Somalia with ash-Shabaab, and Sudan with its regime under Omar al-Bashir (to name just a few), Islamism enjoys success without dependence on financial boosts from petroleum profits.

As Pipes noted back in 2002: "Oil revenues helped give militant Islam a start; but once up and running… it [militant Islam] no longer depends on this financial boost as shown by oil revenues having several times in the intervening years gone down without a noticeable reduction in militant Islam's steady gains."

In short, therefore, growing energy independence for the West via shale oil (a pleasing development in its own right) seems unlikely to hamper significantly the problem of Islamist ideology.

The only real solution- necessary, but difficult and almost certainly long-term- is honest reform within mainstream Islam to counter appeal to traditional notions of waging jihad against non-Muslims and imposing Shari'a in the public realm.

Update from Nov. 27, 2011: Concerning the issue of whether the West can attain complete energy independence, the owner of the blog "The Happy Arab News Service" wrote to me, soundly arguing that:

There is not so much uncertainty here. Until now the [oil] prices were determined by scarcity. Soon they will be determined by unconventional oil production costs. In particular if the Saudis are winding down their expansion plans, that means they are giving up on the fight. The Saudis' control over the prices until now was pretty much based on an implicit threat to blow their top and flood the market with their spare capacity. This is what is putting off other OPEC members and alternatives until now. Iran should be the most vulnerable of them all. Ultimately what matters is the break even price. I believe the Persians are budgeting on the assumption of $80 to barrel if not all $100.

Update II: It appears that in the original article I confused oil shale with shale oil. The latter is the subject of technological breakthroughs discussed in the article, and exists in thin layers of shale deposits several miles beneath the Earth's surface, while oil shale is found in sedimentary rock near the Earth's surface and exists in the massive quantities I cited at the beginning of the article, yet there is a significant impediment to the development of these reserves in the United States on account of the fact that the land containing oil shale reserves is federal land. Oil shale has also been the subject of speculation of oil reserves near Israel. As for shale oil reserves, it is thought that there may be at most tens of billions of barrels worth of oil in the United States itself, and so not quite the level of Saudi Arabia's oil reserves.

Therefore, the prospects of energy independence for the United States are even less likely than I had originally supposed, in spite of technological breakthroughs for shale oil. What is also needed is an end to legal restrictions on the potential development of oil shale in the country (there is already an established method of oil shale extraction: namely, heat the rocks in the ground and then pump out the oil).

Many thanks to Bruce Stevens for pointing out the erroneous confusion, which is a common problem.

Update III: Stevens highlights two other technological problems behind oil shale and shale oil technology, namely:

(i) Water leakage in aquifiers is a problem for hydraulic fracturing in shale oil extraction. It is uncertain if propane gel can mitigate this environmental drawback.

(ii) The technology to produce oil from oil shale is not completely commercialized, so the costs are not yet well calculated. This will unfortunately be the case until the U.S. government permits development of oil shale reserves on federal land.

Stevens also points out to me:

"The U.S. (and Israeli and other) oil shales and Canadian (and Venezuelan and Russian and others) oil sands are also big-game changing factors that are probably on the Saudis' minds. The Canadians are of course already producing and ramping up their output, while the Vens have announced that they intend to start oil sands production. These reserves are enormous: Canadian reserves are unofficially projected to be about 1.7 trillion barrels, and the Vens have something like 1 trillion bbls. The U.S. oil shale reserves are comparable to Canada's, but are of course currently politically blocked. I hope this will change, and I proposed to several Congressional people that the government should permit development of these reserves, while simultaneously protecting North American energy production (including "green" forms) from another Saudi-led price war."

One can further draw up projected global oil supply curves in comparison with the year 2000- assuming the full development of U.S. oil shale reserves and Canadian tar sands- that support the opinion expressed by The Happy Arab News Service.

In the scenario outlined here I agree with Stevens on the following implications regarding oil geopolitics:

"If North America becomes the global marginal producer of oil, with production capability of replacing Mideast production if necessary, then geopolitics will change dramatically. The U.S. will no longer need to protect the sea lanes, the Chinese will feel less need for a blue water navy, and both developments will help the respective governments fiscally. (Development of our shales would also be a boon to the economy and to government revenues. Areas where shale oil and gas are being developed, like the Bakken, are already headline-grabbing boom regions.) Meanwhile, the Saudis and Iranians will be marginalized and lose both income and influence. If the U.S. took itself off the global market for oil, accepting a higher domestic price than would exist abroad as a sensible security trade-off, then the global price of oil would crash to around $30/bbl. (It may even reach that level in North America, depending on what the actual production costs of oil shale turn out to be.) This would cause severe cash flow problems in both the Kingdom and Iran, probably threatening their governments, and certainly crippling their military spending."

Nevertheless, I still doubt that any of this would have a significant impact on Islamism as a whole. To understand why, consider the case of Mali. Mali is a predominantly Sunni Muslim country (90%) and one of the ten poorest nations in the world. However, Islamism as a political force is not significant in Mali. In fact, Mali is a secular state with no official religion, tolerates religious and academic freedom, and is classified as a genuine electoral democracy and "free" in Freedom House's 2011 report on political and civil liberties in the country. To be sure, there is a body known as the High Islamic Council, but its role is not to impose Shari'a in the public realm. Of course, there are problems like rampant female genital mutilation, and the security threat of al-Qa'ida in the Islamic Maghreb (albeit generally lacking support among the native population). Some further issues are highlighted in the World Almanac of Islamism's entry on Mali.

So why is Islamism generally a marginalized force in Mali? The answer is that, since Islam spread peacefully in the area and was synthesized with local (animist) traditions, aspects of the traditional theology like jihad and imposition of Shari'a in the public realm were gradually de-emphasized and disregarded (this is also true for parts of Indonesia, Kosovo and Albania, where Islamism likewise lacks firm popular support), hence the widespread perception in Mali today that Islamism does not belong in the country as it is not in accordance with the culture of tolerance.

If the growth of Islamism were primarily a matter of Islamists' use of oil revenues to propagate their ideology, why have they had little success in entrenching their ideology in Mali? So the same can be asked of Senegal, another poor country- with a 94% Muslim majority- scoring just below the status of "free" in Freedom House's estimation, and where "religious freedom is respected, and the government continues to provide free airline tickets to Senagalese Muslims and Christians undertaking pilgrimage overseas." Thus, the problem of Islamism is much, much deeper than the oil boom that began in the 1970s.

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