Get ready for a new map of global economic power, this one redrawn by American shale gas. It could change the landscape in two ways: reviving hope for American manufacturing, and prompting an American-Russian rivalry over the export of energy to Europe and Asia.
For decades, Americans have watched the cheap cost of factory labor catapult China to wealth and superpower status, and allow economies elsewhere — southern Asia, Latin America, Eastern Europe — to climb the ladder of economic development. This has set in motion the largest transfer in global wealth and power since the rise of the West in the 18th century, while the West accustomed itself to growing unemployment, urban blight and rising opposition to globalization itself.
But shale gas could well reverse this trend, and in the process redraw some important strategic relationships. Natural gas is cleaner than coal; it is cheaper than nuclear power, and easier and quicker to develop. Existing technology can locate and mine huge gas reserves that have been detected but are difficult to reach, and then transport the gas across the world. That promises to make gas the critical energy source for global industrial output, displacing the cost of local labor from its pivotal role as the measure of where to build the most profitable new factory. In the next phase of globalization, the local cost of natural gas is more likely to be that yardstick. And that, in turn, could shift the relative weight of global wealth and political power.
President Obama is being realistic when he promises a return of manufacturing to America on the back of abundant and cheap gas supplies. Recognizing America’s potential, even energy producers like Qatar and Azerbaijan are already investing in the exploration for and distribution of American natural gas. And many in Asia now look to America as the next emerging market to fuel global economic growth.
The 2011 Fukushima Daiichi nuclear disaster accelerated the turn to natural gas; in its aftermath, Japan and then Germany cut their dependence on nuclear power. Now experts predict that by 2035, natural gas consumption could grow by more than 50 percent, from 3.3 trillion cubic meters a year to 5.1 trillion — 25 percent of expected global energy demand. That has brought a spike in investment in gas pipelines and in facilities needed to transport liquefied natural gas, in anticipation of a restored American comparative advantage in manufacturing. Already, natural gas prices in America have fallen to less than half of the $17 to $18 per million B.T.U.s that they are in Asia. There is plenty of gas in energy hubs like Qatar, or under the Mediterranean and South China Seas, but it would be very costly to extract and transport, making it difficult for Asian economies to maintain their current cost advantages. And China’s labor costs are already inching up for other reasons.
So in coming decades, manufacturers may well find it difficult to justify paying twice as much for Middle Eastern gas imported to China as they would for natural gas extracted in the United States.
In such a world, China could find itself struggling more in its role as America’s main trade rival, and in the geostrategic role it feels its national wealth can buy.
But that doesn’t mean a shale gas revolution ensures America’s unrivaled primacy. Instead, it would shift the focus of rivalry in the direction of competition between America and Russia (and, in the future, perhaps Iran), for the position of the world’s most powerful energy supplier.
Iran and Russia have the largest reserves of natural gas in the world, and that will not change soon. Their reserves are cheaper and easier to extract than much of America’s, because they do not require the advanced technology and vast water resources that shale gas extraction demands. Nor does extraction from traditional sources carry as many risks to the environment as shale gas does, with its dependence on fracking. So it is conceivable that Russia and Iran would use their gas to lure manufacturing to their own territory, in the way China once used cheap labor.
But it is more likely that Russia — and Iran, too, if agreement over its nuclear program allowed the lifting of sanctions — would simply get richer by supplying cheap gas to America’s economic rivals, and in the process keep them economically competitive with America. Russia already plays such a role with Germany, providing it with gas at prices comparable to what American manufacturers pay. The recent $400 billion gas deal between Russia and China promises to guarantee China low energy costs by one day allowing China, like Germany, to get Russian gas through pipelines. Russia could also enter into a similar agreement with Korea and Japan.
In this scenario, there is a geostrategic challenge for the United States: Russia could emerge with great sway over both the supply and the price of natural gas, potentially playing the role that Saudi Arabia played at the height of global dependence on Middle Eastern oil, and making all of America’s main economic rivals in Europe and Asia dependent on Russia.
To avoid such an outcome, the United States must start now to develop a global energy strategy, designed to compete with Russia and to provide both Europe and Asia with viable alternatives to Russian gas. One possibility is that America could help China develop its own shale gas.
Most important, Congress should approve the export of America’s natural gas and support the building of terminals for shipping it. And America should, like Russia, be looking now to seal long-term gas deals with Europe and Asia. That could allow the United States to emerge a winner on both fronts of the new map of economic rivalries.
Vali R. Nasr, the dean of the Johns Hopkins School of Advanced International Studies, is the author of The Dispensable Nation: American Foreign Policy in Retreat.