This article was featured in GSSR Vol. 1 Issue 3.
By: Andrea Clabough
For decades, energy development in the Middle East has equated to one word: oil. Middle East oil production has fueled the region’s most influential actors and periodically threatened the energy security of the global community at large, most dramatically in the 1970s when the Organization of the Petroleum Exporting Countries (OPEC) cartel restricted the global oil supply resulting in high prices and gas shortages. Indeed, seemingly boundless reserves of fossil fuel resources were among the few consistent factors defining an often-turbulent region.
Today, however, the consistency of the Middle East energy dynamic is rapidly evolving as the old guard of oil and natural gas developers may be losing their historic advantages in fuel development while a new group of potential energy developers are taking advantage of recent technological advances that have unlocked previously inaccessible reserves of fossil fuels. These potentially dramatic changes will have major repercussions for the entire region. Indeed, they are already radically changing the global energy security environment.
Hydraulic Fracturing and the Shale Revolution
Ironically, these developments in the Middle East can be traced back to a key moment of innovation in the United States: the commercial application of hydraulic fracturing in the late 2000s. As recently as 2008, the U.S. faced a daunting energy challenge: oil and natural gas were both expensive and heavily imported while renewables technologies were in their infancies. Hydraulic fracturing — the process of extracting natural gas from small pockets of shale rock through horizontal drilling methods — changed everything. The abundance of natural gas scattered throughout North America, previously uneconomical and difficult to extract, became easily harvested, resulting in increased exploration and production throughout the continent. In addition to the sudden glut of natural gas, hydraulic fracturing gave way to the commercial production of shale oil — that is, oil trapped within shale rock formations with similar geological traits as those containing natural gas.
Today, facilities such as that in Sabine Pass, Louisiana originally designed to import natural gas from North Africa are being rebranded as lucrative export facilities. In addition to the imminent expansion of the U.S. natural gas export market, the U.S. Energy Information Administration (EIA) has predicted that the United States will soon join the world’s leading oil producers, generating as many as 9.7 million barrels of oil per day by 2020 – a nearly 100 percent increase from 2011 levels. North Dakota, for example, contains both the Bakken Shale and Three Forks Formations; while estimates on the recoverable oil reserves in these areas have varied, the most recent US Geological Survey of this region has estimated recoverable resources at 7.4 billion barrels of oil. If these estimates prove legitimate, it is nearly certain that these lucrative reserves will be developed.
The Old Guard: New Suppliers, New Markets
In 2010, five of the top 10 oilproducing countries in the world were located in the Middle East: Saudi Arabia (the second largest global producer behind Russia), Iran, Iraq, Kuwait, and the United Arab Emirates (UAE). This group accounted for more than a quarter of global oil production. Because oil and natural gas are usually produced together, Saudi Arabia and Iran were also among the leading gas producers, in addition to Qatar and Algeria. Each of these economies continues to depend on energy development to varying degrees; in some casessuch as Algeria, fossil fuels are a profitable industry, while they are the economic and political lifeblood of oil-welfare states like Saudi Arabia.
As of 2013, however, the rapid growth of U.S. oil production, as well as the potential for production in new regions, including Southeast Asia, will introduce a new brand of oil suppliers to the global market. These changes will not occur immediately, and the U.S. may never export large quantities of oil, preferring to instead supply its own demand with support from friendly, and equally well-resourced, neighbors. Nevertheless, the decline of U.S. oil demand will shift energy markets east to major developing economies in Asia. Indeed, the newest EIA Short-Term Energy Outlook predicts that China will surpass the United States as the leading consumer of oil by October 2013. While there will remain a strong international oil demand, led by soaring Chinese consumption, the influx of suppliers could have major effects on Middle East oil producers accustomed to captive markets and easily manipulated supplies. The key issue is not so much demand for oil and fossil fuels more generally, but rather control of the global marketplace. Whereas in the past organizations like OPEC could finely tune the oil supply to maximize profits and influence, the old oligarchic system is rapidly transforming into a multipolar one.
Thus far, Middle East leaders have been sanguine about this issue, preferring to show cool responses to otherwise disturbing EIA and International Energy Agency (IEA) reports that demonstrate an evolving dynamic that threatens to destabilize the international price of oil. Although discussion of the shale revolution dominated a recent OPEC conference in June 2013, the organization’s Secretary General noted, “OPEC will be around after shale oil finishes.” Furthermore, Saudi Arabia’s oil minister has compared the shale revolution to other oil discoveries that ultimately produced far higher expectations than actual results. This optimism, however, may mask a deep internal thought process within the old guard, particularly the Gulf states, about how to deal with the energy supply changes that are rapidly becoming a reality. As IEA Executive Director Maria Van der Hoeven observed, “North America has set off a supply shock that is sending ripples throughout the world.”
From the Gulf to the Mediterranean
The sudden emergence of the U.S. as an energy superpower has fundamentally affected the global energy market and, by extension, a host of associated international security issues. For the Middle East, however, an equally important facet of the ongoing energy revolution is the export of unconventional drilling technologies to potential new energy developers.
The proliferation of unconventional drilling technology has led a new group of potential fossil fuel producers in the Levant to reexamine their fossil fuel reserves. Leading this group is Israel. With offshore reserves concentrated in a handful of major shale plays, Israel is estimated to have access to more than 250 billion barrels of shale oil in its Shfela Basin, oil accessible through imported U.S. horizontal drilling technology. In addition, Israel possesses several trillion cubic feet of natural gas reserves in the Tamar, Leviathan, and Karish fields. In the face of this sudden abundance of energy, Israeli officials have declared that 60 percent of its resources will be used domestically, although international exports (currently headed to Jordan) have already been approved in the Israeli Knesset. The abundance of Israeli natural gas could also have profound effects on sometimes tenuous relationship with its neighbor, Egypt. For years, Israel has been a major importer of Egyptian natural gas; Israel is now set to become a potential competitor supplier. With Turkey and Israel already contemplating a pipeline to supply Europe (undercutting both Egyptian and Russian producers) with Israeli gas, it is clear that Israel intends to move quickly in developing this strategic asset. Nevertheless, optimistic forecasts for Israeli energy exports may evolve further as shale reserves are fully explored and estimates are potentially downgraded.
The Mediterranean shale plays —geographic regions suitable for shale development — are not confined to Israel’s coastal waters; indeed those claims by Israel are already disputed by the Palestinian Authority (PA), Lebanon, and even Cyprus and Turkey. The Levant Basin in question covers a large swatch of the Mediterranean, inconveniently spanning multiple countries’ territorial waters. Given the tremendous uncertainty in the Levant region surrounding the ongoing Syrian conflict, these countries have not overly exerted their territorial claims to the oil and gas beneath their shared waters. In the long-term, however, Levant states may find the allure of lucrative energy development tempting enough to risk tensions with Israel in order to secure all or part of resources technically within their territorial claims. It is plausible that the PA, Lebanon, and Cyprus may all try to assert their maritime territorial claims against those of Israel. Still, they are likely to face difficulty without concerted international support from key actors such as the EU and the U.S., which typically avoid antagonizing Israel and have little interest in the dispute so long as the fossil fuels are developed and sold.
Assuming that one or multiple countries are able to develop these resources without a dispute akin to the South China Sea problem, where does this lead? In Israel’s case, new and pervasive energy security could ameliorate broader security concerns as Israel gains a commodity to trade amongst its immediate neighbors (most of whom are energy-poor) and a potential area of cooperation for mutual economic gains. The potential to become a net energy exporter after decades of heavy imports would be a tremendous advantage for Israel. In addition to securing its own energy independence, and no longer relying on the unstable Egyptian energy export market (another victim of that country’s present instability), Israel could potentially strengthen its ties to Europe by reducing its dependence on Russian supplies and the mercurial tendencies of Russia’s state-owned fuel development company, Gazprom. However, with the U.S. and Australia on the verge of supplying large amounts of natural gas to the international community—and Qatar already doing so—it is unlikely that any of these Mediterranean states could hope to compete in a global natural gas export market. The necessary infrastructure to do so would be capital intensive and take years to develop.
Rather, as the Knesset’s 40 percent cap on natural gas exports demonstrates, the potential benefits may be best applied to domestic energy demand. In Lebanon’s case, with a potentially robust economy held back by uncertain energy supplies, the development of natural gas could provide an economic turning point for that country. The PA, facing entrenched poverty and few valuable native industries, would benefit tremendously from a secure energy infrastructure and the potential profits associated with energy development, particularly if these goals could be achieved through some sort of trade or development partnership with Israel. In sum, developing Mediterranean energy resources could have significant advantages for all interested parties if presently high expectations for extraction come to fruition. However, in a region fraught with entrenched political, economic, and cultural tensions, sharing even a very large “pie” of fossil fuel resources will almost certainly be easier said than done.
Conclusion: The New Energy Equation
A handful of monumental technological advances have spurred developments that are changing the old regime of Middle Eastern energy politics. While the long-standing energy giants of the region are facing a new set of suppliers and potential control challenges, a new group of formerly import-dependent states are eyeing vast, untapped fossil fuel resources just off their coastal waters. Certainly, energy development of any type is a long process replete with mistakes, revisions, and technological and regulatory hurdles. The broader political and economic effects of this development will not likely be felt for years to come. Nevertheless, the international community would be wise to anticipate them now, and take steps to ensure that the new energy landscape of the Middle East is as constructive, not destructive, as possible.
Ms. Clabough is a recent graduate of the Security Studies program at the Georgetown School of Foreign Service. She holds Bachelors degrees in Political Science and History from Vanderbilt University and is from Knoxville, Tennessee.
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