Market realities increase national interdependencies.

Author:Karev, Adi

The ability to unlock domestic shale formations has been transformational for the United States. However, the ripple effects of this energy boom extend well beyond the North American continent.

As emphasized in the Deloitte Touche Tohmatsu Limited (DTTL)'s "2014 Oil and Gas Reality Check," the shifting role of the United States from major energy importer to soon-to-be exporter is an international development, the implications of which will be felt across the Middle East, Russia and China.

The report explores how this trend, as well as others, is causing expansion and contraction on a number of fronts: the waxing and waning of dominance among suppliers, the progression into globalization from regionalization in energy markets, the growing shares of some fuels and the declining roles of others in the global energy mix, and the opening and closing of borders in response to geopolitical concerns.

Here is a snapshot of the report's conclusions across five key areas:

North American Revolution

The United States is positioned to be a net exporter of natural gas by the end of this decade, according to projections from the federal Energy Information Administration (EIA). This growth has been no less astonishing in the oil market.

Access to tight oil, the kind found in shale formations, has increased U.S. production from just over 5 MMbbl/d in 2008 to more than 7.4 MMbbl/d in 2013--the largest five-year increase in crude production in U.S. history.

Some fear this growing feeling of self-sufficiency will translate into greater isolationism and a reluctance to remain engaged in international affairs. However, the report finds this scenario unlikely as new sources of supply and greater competition for demand, particularly in Asia Pacific, reshape the global geopolitical landscape and create greater, not fewer, interdependencies among nations.



Consider the Middle East, for example. Middle East crude cargoes are anticipating a shift as exports are increasingly being directed eastward toward Asia rather than westward toward the U.S. and Europe. Nonetheless, we believe that predictions of U.S. disengagement from the Middle East are overstated.

Given the fungibility of world oil markets, a disruption in Middle East oil supplies will reverberate to the U.S. domestic market regardless of whether the region remains a major source of crude imports. In addition, the region's volatility continues as the new normal since the "Arab Spring" protests. With no clear alternative to the U.S. military for maintaining the balance of power in the region and with important allies to protect, the United States will likely remain engaged there for the foreseeable future.

The situation in China underscores a similar trend toward greater interdependency. The EIA predicts China will become the largest importer of crude in the world sometime this year. However, if the United States is now less dependent on Middle Eastern supplies, China has grown more so, and its reliance on supplies from the Middle East and North Africa requires regional stability and steady trading partners.

Notwithstanding the Gulf Cooperation Council's relative stability since the beginning of the Arab Spring...

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