Chris Sheehan

“Curiouser and curiouser” was what Alice was wont to say in Wonderland, and sometimes events in energy seem to be as wondrous as those witnessed by Alice.

Maybe it’s just an issue of old-fashioned thinking. Energy is a “mature” industry, after all, right?

Not if you believe Mark Miles, a resident scholar of the Manhattan Institute. He argues that the newfound abundance of oil and gas is “a function of technology, not of geology,” and thus revolutionary in character.

“Technology unleashes resources, resource wealth creates capital, and capital is reinvested in new technology that in turn unleashes resources,” he says.

A classic example of this might be how horizontal drilling and hydraulic fracturing—having become so successful in reducing natural gas prices—in turn spawned another technology: the use of natural gas, in place of more expensive diesel, to power rigs and pumping equipment in the search for yet more resources.

Much broader examples are apparent. Natural gas-derived ethane is so abundant that investment in ethylene crackers is happening along the Gulf Coast for the first time since the 1990s. Structuring long-term natural gas contracts with a risk-sharing element, as Chesapeake Energy Corp. did recently with Methanex Corp., is helping to revitalize the methanol industry in Louisiana.

Steel producers are also getting in on the act. Nucor Corp. announced a long-term agreement with Encana Oil & Gas (USA) designed to ensure “a sustainable competitive advantage in natural gas costs” for a new direct reduced iron (DRI) facility being built in Louisiana. Now European producer Voestalpine AG has also given the green light to a plant in the U.S. based on DRI.

All these reinforce an image of the U.S. comparative advantage in energy growing higher and higher—like Alice growing higher and higher after eating the cake with the sign reading “EAT ME.”

But if the U.S. is gaining comparative advantage, what of other countries? Are they telescoping higher, like the U.S., or smaller, like Alice after trying the bottle labeled “DRINK ME”?

In terms of shale development, China is seeking ways to grow, and major oilfield service companies are forming joint ventures in which to proceed. The opportunity stems from shale gas being classified as a mineral rather than as a hydrocarbon. While Chinese national oil companies remain focused on tight gas, other companies can bid for licenses involving shale gas.

Argentina is also mentioned by more than one major oilfield service company, both for oil and gas. However, even if the opportunity is large, much confidence will have to be restored after the government’s expropriation of YPF from Repsol.

In Europe, of course, France has already bowed out, with the new Hollande government saying that it would not permit hydraulic fracturing. Without private ownership of mineral rights, this may not come as much of a surprise. However, one wonders about the mindset behind such a ban, given that the Paris-based International Energy Agency describes France’s natural gas production as “negligible,” while at the same time carrying an estimate that fracing could potentially unlock reserves equivalent to “around 100 years” of current consumption.

On the nuclear side, France—once a leading proponent of atomic energy—has a goal of cutting its reliance on nuclear energy from over 75% to 50% by shutting 24 reactors by 2025. Germany has a goal, set in the wake of Japan’s Fukishima nuclear disaster, of phasing out all nuclear plants by 2022; to date, eight have been retired. Fossil fuel plants are also being taken down, as German energy policy targets 35% of electricity consumption being met by renewables by 2020, up from 20% in 2011. Despite growing public concern over rising electricity costs tied to renewables, the target rises to 80% by 2050.

But if French and German policies seem precarious—to their own economic wellbeing—hold up! Help may be on the way!

In some quarters, the world view is now that the shale revolution may make resource scarcity a thing of the past, replacing it with an era of resource abundance. Example: Such is the extent of U.S. shale success that once-U.S.-bound liquefied natural gas (LNG) from Qatar is being diverted to Europe, lessening European dependence on Russian gas, and prompting increased Russian LNG sales to Japan. Multiply that many times over, in different producing regions, and we’re awash in resources. Curiouser and curiouser.