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How the U.S. shale boom is dragging down Russia
The U.S. is fracking its way to the top
Move over, Russia.
Move over, Russia. (REUTERS/Lucy Nicholson)
T

he U.S. is about to dethrone Russia as the world's largest producer of oil and natural gas — a change that will further shake up the power dynamics in the global energy market.

In recent years, U.S. energy production has surged, as fracking technologies have allowed energy producers to tap the potential of shale rock — geological formations rich in oil and natural gas. As of July, the U.S. was producing 22 million barrels of oil and natural gas each day, says The Wall Street Journal's Russell Gold and Daniel Gilbert.

While the fracking boom has helped put the U.S. on the track toward energy independence — the U.S. is importing 32 percent less natural gas and 15 percent less crude oil in the past five years — it's been a problem for other energy-rich nations, especially Russia, the biggest energy producer in the world. "The dramatic changes in the global gas market have plunged Russia into a recession," says Free Beacon's Daniel Wiser.

For years, Russia's state-run energy giant Gazprom has powered the country's economic growth, pumping huge amounts of energy to Europe and China. "Hydrocarbons have accounted for half of Russia's GDP growth since 2000," says Wiser.

But in 2012, the U.S. overtook Russia in natural gas production for the first time since 1982, says Gold and Gilbert. And at the same time, Russia has been slow to get with the fracking program. The result is that Gazprom's global dominance has started to dwindle. Gazprom's exports to Europe dropped eight percent in 2012 — and is now at the lowest level in 10 years.

And as the U.S. hit that 22 million barrels a day mark in July, Moscow's forecast for oil and gas production hit 21.8 million barrels a day.

The shift is "reshaping markets and eroding the clout of traditional energy-rich nations," says the Journal. Global gas prices are sliding, Europe suddenly has more options for where to buy gas from, and the U.S. no longer looks like a target for Gazprom's exports.

"[T]he surge in U.S. natural gas production has undercut Russian gas exports to Europe and prompted executives to scuttle their plan for shipping liquefied natural gas (LNG) to America," a Russian energy expert told Wiser. Russia is having a hard time keeping up:

Additionally, Russia's longtime reliance on traditional natural gas production methods involving dry storage, steel pipeline transport, and long-term contracts linked to gas prices will hamper its attempt to transition to cutting-edge markets such as East Asia, he said during a lecture at Johns Hopkins University's School of Advanced International Studies. [Free Beacon]

But the power shift toward U.S. dominance may not last forever, says Gold and Gilbert. Especially as fracking becomes more controversial:

Even optimists in the U.S. concede that the shale boom's longevity could hinge on commodity prices, government regulations and public support, the last of which could be problematic. A poll last month by the Pew Research Center for the People and the Press found that opposition to increased use of fracking rose to 49 percent from 38 percent in the previous six months. [The Wall Street Journal]

Carmel Lobello is the business editor at TheWeek.com. Previously, she was an editor at DeathandTaxesMag.com.

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