Laurie Barr, Wikimedia Commons The U.S. shale gas revolution is the most significant development in the global energy industry in the past decade. The ongoing transformation of the United States from the world’s largest importer of oil and natural gas into a potentially significant exporter over the next decade could be beneficial in terms of availability, affordability, and potential sustainability for not only the United States’ energy security but for Asia’s as well.

Energy security is commonly defined as the availability of energy at all times in various forms, at affordable prices and in sufficient quantities, without unacceptable or irreversible impacts on the economy or the environment. With its rising demand for energy, the Asian region is driving global economic growth. While there are regional differences in resource endowment, all of the major regional economies are increasingly import-dependent. China, for example, is on target to become the world’s largest oil importer over the next several years, while Japan is already the world’s largest importer of natural gas.

Over the past decade, energy has evolved into a security issue as major regional economies, such as China and Japan, have adopted competitive approaches to better access oil and gas fields and pipeline routes. While regional competition is unlikely to result in energy-related conflict, growing energy intake and import-dependence have a negative effect on regional energy security. Moreover, competition within Asia for increasingly concentrated supplies raises energy costs, while growing coal consumption leads to increased greenhouse gas emissions and overall environmental degradation.

Despite this bleak outlook for Asia’s energy future, the U.S. shale gas revolution and subsequent transformation into an energy exporter is an auspicious beginning to a new era in Asian energy security.

In terms of availability, lower U.S. oil imports will force oil producers in Africa, the Middle East, and the Americas, which currently count on the steady U.S. demand for crude, to identify other export markets. This will open up additional supplies to Asian importers and even reduce regional competition over access to oil over the second half of this decade.

Greater affordability for Asian energy markets will be realized through the exportation of excess U.S. natural gas to Asia in the form of liquefied natural gas (LNG). In contrast to oil, the global LNG market is regionally fragmented. In recent years, the price of LNG in Asia, where it is indexed to crude oil prices, skyrocketed to over $17 per million British thermal units (Btu). At the same time, domestic natural gas prices in the United States (known as “Henry Hub” prices) dropped to less than $3 per million Btu.

This price discrepancy has had a toxic impact on Asian importers such as Japan. Following the March 2011 Fukushima nuclear meltdown, Japan has had to resort to LNG to replace 25 percent of its electricity supplies. With import volumes up by 25 percent since Fukushima, Japan’s LNG import bill doubled over the past three years. In response, Japanese and other Asian companies have participated in numerous LNG export projects in the United States and Canada. With new contracts signed under Henry Hub pricing arrangements, future LNG imports from North America could cost 20 to 30 percent less than the average cost in Asia under existing contracts. It is estimated that Asia’s pivot will translate into importing approximately 50 million tons of North American LNG by 2020.

While market prices fluctuate and this price advantage cannot be guaranteed, diversification of the pricing mechanism of LNG procurement could challenge the future pricing structure of long-term contracts with Asian nations’ traditional suppliers, such as Australia and Indonesia. However, it is unlikely that this will eventuate before 2016, when North American LNG starts flowing to Asia.

In terms of sustainability, the U.S. shale revolution may have a particular effect in China, the world’s largest energy user. Although natural gas is 50 percent less carbon-intensive than coal, it currently accounts for less than 5 percent of China’s energy consumption. Coal constitutes close to 70 percent of China’s energy use, making it the world’s largest emitter of carbon dioxide.

With China’s unconventional gas reserves estimated to be larger than those of the U.S. and Canada combined, it has aimed to replicate the U.S. boom. While the Chinese government has announced its intention to produce shale gas, however, the country’s production is effectively nil because it faces technological, geological, infrastructural, and water supply hurdles that will delay large-scale shale gas production. With the jury still out on the potential Chinese shale gas revolution, additional U.S. LNG supplies at potentially lower prices would, at the very least, encourage Beijing to use more gas and less coal.

Consequently, the U.S. shale gas revolution can potentially improve Asia’s energy security in terms of availability, affordability and sustainability. However, given that the construction of a new energy infrastructure requires significant capital and time, it may take up to a decade for these benefits to be realized. In the meantime, it will be essential for major Asian economies to promote a multilateral approach to energy issues by actively engaging in regular high level discussions.

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