Innovation generates passions. We cannot count the comments and the books which explain that artificial intelligence will transform our lives, for the best, according to some or for the worst according to others. Electric cars or autonomous vehicles will drive us to rethink about our moving modes. Smart-phones have changed our daily life. Internet is not anymore limited to professional activities and permanently accompanies us and wherever we go. But these passions or this interest are selective. The twin shale oil and gas revolutions have not been forecast by anybody, anyway in France. It is still denied in our country where any new exploration is forbidden by the law. Yet, it has disrupted a strategic activity, energy, with major economic and political consequences. The rapidity of these transformations is coming from the fact that they answer an expectation from economic agents. No innovations, as spectacular they are, like the moon conquest, supersonic or vertical take-off planes did obtain significant openings if they did not answer to an expectation.
As these changes hurt interests, they are frequently denied or fought. During a long period of time, it has been brought the idea that resources being limited, one day will occur when oil production levels off; it was the peak oil theory. That peak was supposed to be around 85 billion barrels per day. In 2017, production reached 94 billion and the forecasts, for the coming five years, are above the 100 billion threshold. To get reinsured, the same experts did then dream up a new theory, the “demand peak”. It will not be necessary to produce such a quantity of oil because there will be less and less clients. That prediction is still to be checked. Innovation in the car industry, which is one of the most important market for oil permits to significantly reduce consumption. In the United States, where gasoline carries a low taxation, cars are very voracious. The replacement of the number of the cars with less voracious ones will permit to the gasoline demand to stagnate and even to slightly decrease but the change will be slow. The rise of electric vehicles is still problematic because everything will not only depend as it is generally thought from their autonomy but also from the recharging capacities and their availability, in the U.S. as in Europe. Oil demand will not decrease but move toward Central Asia, China and India where the car ownership rate is still very inferior to what it is observed in developed countries.
It is this demand shift which will generate a deep change, which will not be without economic and political consequences. The United States will be one of the main beneficiaries. Thanks to the shale oil, production rose from 6 billion barrels per day in 2007 to ten billion in 2017, i.e. the same level than Russia and Saudi Arabia. The price fall in 2014 made people think that it will stop these new production techniques. It didn’t happen and important cuts in production costs were achieved. American shale oil is competitive with a near 60$ per barrel price. The country now is producing about two third of its consumption instead of one third ten years ago. The capacity of the newly discovered reserves in the Permian basin located in the south of Texas was so important that American refineries were not able to treat it. So, the Obama administration, in 2015, put an end to the interdiction of oil exports which had been instituted after the first oil shock. Works on some pipe-lines will allow them to reverse flows. Instead of being sent toward the North, they will go to the harbors located on the Gulf of Mexico. Other ones linking the Permian basin to the coast are under construction. In both cases, the purpose is to increase American oil exports capacity. The arrival of a new player on the world market is changing the state of affairs. Until now, it was the OPEC which dictated the rules. In the future, they will result from agreements between Saudi Arabia and the U.S. In front of them will be Russia and Iran. So it is not a coincidence if these two alliances are opposed in the Middle East conflict.
The other revolution, the shale gas one, will have different consequences. The denunciation, and in some countries the highly utopian project to banish fossil fuels, was motivated by the fight against climate warming. The new abundance of natural gas, which is not going to disappear if we think about the huge reserves in Asia and in Latin America, has generated a price fall and made power plants using it more competitive than coal ones. In the same time, the new transport possibilities thanks to progress accomplished in liquefaction technologies, both by cargoes and in the harbors facilities, have permitted to supply a growing number of countries.
Now, using coal generates twice more CO2 emissions than natural gas, without even taking into account the particles which poison air around. American utilities quickly reacted: natural gas power plants doubled their share of electricity production in a few years to the detriment of coal power plants. This is a new proof that when an innovation answers to market expectations, it can develop itself very quickly. American CO2 emissions have fallen since 2015, which is not the lesser paradox when we know Donald Trump position regarding the Paris Agreement. This case is not isolated and China has moved in the same direction: its natural gas consumption has tripled in ten years. Europe, and especially Germany, are an exception and resist in order to saving jobs in brown coal mines. But it is a rearguard fight and the new government in Berlin will have difficulties to continue to oppose the instauration of tougher European rules, including carbon quotas.
Fossil fuels revolution is not the one we believe. There is not going to have a disappearance of them but a continuation of the oil and gas production growth which will frequently come to take the place of coal. That will permit to reach CO2 reduction targets and to efficiently fight against climate warming. Renewable energies, well adapted to geographic areas where sun is intense and where wind is frequent will need additional sources due to their intermittent nature. In developing countries, in Africa for instance, where the access to power is still insufficient and where energy consumption will increase during a long period of time due to demographic dynamism, fossil fuels will be welcomed.
France has a natural gas culture. Our country was even a producer. We know how to build and operate pipe lines and we master technologies related to LNG. We have a long experience in the distribution business. Instead of denying the existence of a real revolution in energy and stigmatizing all the fossil fuels, time could be come to encourage our companies, which have the know-how, to take advantage of that revolution instead of staying in its denial.