Future Petroleum Geopolitics: Consequences of
Climate Policy and Unconventional Oil and Gas
Norwegian Institute of International Affairs (NUPI), Oslo, Norway
The importance of oil and gas for the nances and interna-
tional relations of states is unquestionable. The total value
of the oil produced in 2013 was around US$3 trillion (esti-
mate based on data from EIA, 2014a). Natural gas comes
on top of that. Six of the world’s ten largest publically
listed companies in terms of revenue are in the petroleum
sector—and that does not include the world’s largest oil
company by output, Saudi Aramco, as it is not traded on any
stock exchange (Fortune, 2014). Oil and gas are the back-
bone of the economies of many petroleum-exporting coun-
tries, underpinning the foreign policies of countries such as
Russia, Saudi Arabia, and Venezuela (Orttung and Overland,
2011). Conversely, they represent a considerable burden on
the trade and scal balances of many importing countries,
leaving them weaker than they would otherwise have been.
Petroleum resources also bring together 12 mostly anti-
American countries in OPEC; they are one of the motiva-
tions for US political and military involvement in the Middle
East, and a factor in territorial disputes between countries in
several parts of the world.
This chapter examines how two major ongoing devel-
opments in the petroleum sector—advances in production
methods for unconventional oil and gas and negotiations
over a global climate policy—may transform petroleum-
related geopolitics. Rapid growth in the production of shale
oil and gas is already a reality in the United States, which
is set to overtake Russia and Saudi Arabia as the world’s
largest oil producer (Jones, Steven, and O’Brien, 2014: 2).
Global climate policy has largely been a failure, and energy
consumption as well as greenhouse gas emissions have
Handbook of Clean Energy Systems. Edited by Jinyue Yan.
©2015 John Wiley & Sons, Ltd. ISBN: 978-1-118-38858-7.
continued to soar (Hoffert, 2010: 1292; Vielle and Viguier,
2007: 844)—but this could change in the future.
It is a paradox that two of the main energy trends today
are simultaneously toward a boom in unconventional oil
and gas production, and toward a stricter global climate
policy. The former contributes to prolonging the era of
fossil fuels, perhaps for a lengthy period, while the other
aims at cutting greenhouse emissions from fossil fuels, as
quickly as possible. The current global energy system is
therefore fraught with tensions, making the evolution of the
sector dynamic and unpredictable. This chapter can only
offer an overview of possible developments: exhaustive or
conclusive analysis is not possible.
For the purpose of this chapter, “geopolitics” is dened
as great power competition over access to strategic loca-
tions and natural resources. (For more on how “geopoli-
tics” can be understood, see Section 2.) The geopolitics of
the petroleum sector can be understood as growing out of
the supply–demand balance, which affects power relations
between exporters and importers, energy security, and the
military clout of major powers—among other things. Uncon-
ventional oil and gas impact on the supply side of these
relationships. Climate policy impacts on the demand side
and to some extent on the supply side as well, because not
only the consumption of oil and gas but also its production
involves greenhouse gas emissions.
There is a qualitative difference between the development
of unconventionals and climate policy: the former is driven
by smaller units (companies, land-owners, and countries)
pursuing their own short-term interests, whereas the latter
requires international consensus and compromise in order to
have an effect at the international level. This is one reason
why unconventionals have moved fast, while the formulation
of global climate policy is slow (Hoffert, 2010: 1292; Vielle
3518 Energy vs. Development
and Viguier, 2007: 844). Looking to the future of unconven-
tionals is a question of how much and how fast, whereas
climate policy is a more fundamental “if.” Nonetheless, both
developments are possible—and those possibilities serve as
the starting point for this chapter.
This chapter is divided into two parts, the rst dedicated
to unconventional oil and gas, and the second to climate
policy. But before delving into the possible political conse-
quences of these developments, some basic questions need
to be addressed: How does the interpretation of the concept
of geopolitics affect the assessment of geopolitical change,
what is unconventional oil and gas and what is the market
context that these developments would interact with? The
main parts of the chapter are then dedicated to teasing out
various geopolitical aspects of these developments, before a
section toward the end discusses how dramatic these changes
are in a historical perspective.
2 THE CONCEPTUALIZATION OF
In order to understand how the geopolitics of oil and gas may
change, we need to understand how the same geopolitics has
worked and been understood in the past. In this section, two
opposing views of the geopolitics of oil and gas are briey
outlined. Which of them one gravitates toward has implica-
tions for how one analyzes the consequences of changes in
the energy sector.
The rst and more commonplace view is that there is
constant geopolitical competition for petroleum resources
(Allison, 2004: 277; Jaffe and Sullivan, 2012: 24; Klare,
2008: 7). US military and political involvement in the Middle
East is seen as one expression of this, including support
for the government of President Hosni Mubarak in Egypt
until the late 2010s, two wars in Iraq, continuing tensions
with Iran and the cooperation with Saudi Arabia (Pelletiere,
2004; Bronson, 2006; Hurst, 2009; Murray, 2009; Sharp,
2011; Shareef, 2014). Other examples are tensions between
the EU and Russia over Russian gas exports and competition
between Chinese, Indian, and Western oil companies in
Africa and Latin America (Carmody, 2011; Molchanov,
2012; Woehrel, 2012; Fern´
andez Jilberto and Hogenboom,
2012; Sharples, 2013).
This mainstream geopolitical view is easily combined
with a peak-oil view of petroleum resources. According
to this Malthusian perspective, the high pace of extrac-
tion and consumption of oil and gas, driven by population
growth and accelerated by economic growth in emerging
economies, is leading to the depletion of the world’s reserves.
The reduced availability of resources, together with rapidly
growing demand, leads to a supply crunch that explains the
high oil prices of the 2000s, in turn interpreted as an indica-
tion of inevitable geopolitical tensions (Fournier and West-
Among its mainstream scholarly and dedicated followers,
geopolitics is considered an academic discipline pertaining
to the relationships between geography, power, and interna-
tional relations. Such authors see themselves as working in
the vein of the classic geopolitical thinkers, such as Rudolf
Kjellen, Halford Mackinder, or Friedrich Ratzel, and assume,
just they did, that geography and natural resources play a
constraining and enabling role in international affairs that
can determine the outcome of those affairs (Edwards, 2003:
Ozkan, 2008: 575; Kelly, 2006: 27). In this perspective,
the linkage between geography and interstate relations is a
constant and basic aspect of international affairs.
An opposing view on geopolitics could be that, since the
birth of the petroleum industry in the nineteenth century, the
geopolitics of oil and gas has undergone several phases. One
phase was characterized by a genuine geopolitical competi-
tion over energy resources. Since then, this competition has
become largely imaginary.
During the rst decades of the existence of the petroleum
industry, there were dramatic ups and downs in the rela-
tionship between supply and demand—but these took place
within a national context. From around 1900, oil became a
highly strategic military commodity, and the globalization
of oil production accelerated. This was the golden era of
petroleum geopolitics, the age of mature colonialism, and
the world wars—global wars of attrition in which industri-
alized countries sought to exhaust each other militarily. The
capacity to produce and deploy vehicles, aircraft, weaponry,
and ammunition around the world were decisive—and this
capacity depended on access to oil. Many main events in
those two wars, such as the Battle of Stalingrad or the oil
embargo of Japan with the ensuing bombing of Pearl Harbor,
were thus directly or indirectly related to gaining access to
petroleum resources, or to cutting off enemy access to such
The invention and rst and so far only use of nuclear
weapons in an actual war, against Hiroshima and Nagasaki
in August 1945, marked the beginning of the end of classical
petroleum geopolitics. As all the major powers acquired
nuclear weapons, the threat of mutually assured destruction
was established—the balance of terror. In addition, there
were no longer white spots on the map over which the great
powers could compete. Although the two major Cold War
blocs continued to occasionally invade or subsume other
countries under their inuence, it was no longer seen as
acceptable to occupy a different country indenitely.
During this period, the international relations of the
petroleum sector, although often envisaged along the same
lines as the era of classical petroleum geopolitics from 1900
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3519
to 1945, were in fact of a different nature. Prices uctuated
according to the balance between supply and demand.
Supply was in turn affected by technological changes such
as the accelerating dispersion of offshore drilling in the
1960s and political events like the founding of OPEC in
1960, the 1973 Yom Kippur War, and uctuating resource
nationalism. Demand was in turn affected by various factors:
economic growth, growing mobility (car ownership, civil
and military aviation), increased use of plastics and articial
fertilizers, larger homes, and increased indoor temperature
control in cold and hot countries. Oil and gas continued
to be highly valuable assets over which companies and
countries competed, but their inuence on the military
capacity of great powers waned. In the US war in Vietnam
(1959–1975), the Soviet invasion of Afghanistan (1979),
the US invasions of Iraq (1991 and 2003) and the US-led
campaign in Afghanistan (2001–2014), access to oil was
an issue and a major expense—but it did not determine the
military outcome of those conicts.
This view of geopolitics has much in common with the
critical geopolitics school of thought, according to which
geopolitics is a social construction that can best be under-
stood as a series of discourses (Dalby and Thuatail, 1996;
Hyndman, 2010; Power and Campbell, 2010). However, it
differs insofar as the connection between geography and the
international politics of oil and gas is not posited as some-
thing fundamentally discursive. Rather, the connection is
seen as something that really existed during a specic period
until the end of the World War II, and lost relevance there-
after. Because much mainstream geopolitical thinking has
failed to realize this, there has been a lag in the conceptu-
alization of geopolitics.
As noted above, which of these two perspectives on
geopolitics one subscribes to has implications for how the
consequences of unconventional oil and gas and climate
policy are understood. If one sees the world as having
been involved in a genuine geopolitical competition over
petroleum resources until the 2010s, then the changes
brought on by these developments may be dramatic at the
level of international affairs. If, however, one does not see
the world as having been involved in such a completion over
petroleum resources, or perhaps only in an imagined compe-
tition, then the implications of these new developments may
be smaller as well as different.
3 UNCONVENTIONAL OIL AND GAS
3.1 What is unconventional oil and gas?
The term unconventional hydrocarbons refers to oil and gas
that are extracted in other ways than through conventional
oil and gas wells. Colloquially, as well as in parts of the
academic literature, unconventional oil and gas are called
shale gas and shale oil. However, that is a misnomer, as much
of the unconventional resources being extracted are not from
shale but other geological formations.
Exactly what is dened as “unconventional” is constantly
changing. The annual World Energy Outlook reports of the
International Energy Agency (IEA) serve as an example. In
the 2001 issue, unconventional oil included oil shales, oil-
sands-based synthetic crudes and derivative products, coal-
based liquid supplies, biomass-based liquid supplies, and gas
to liquids (IEA, 2001: 44). Ten years later, in the 2011 issue,
unconventional oil was dened as including extra-heavy oil,
oil sands, kerogen oil, gas to liquids, and coal to liquids (IEA,
2011: 120). When technologies and energy sources are new,
they are more likely to be considered unconventional; as they
become more widespread, they are more likely to become
conventional. Many of the technologies that are widespread
and considered standard industrial procedure today were
once radically new and considered unconventional.
However, an exact denition of unconventional oil and
gas is not decisive for the purposes of this chapter. They
can be dened simply as hydrocarbons extracted by use of
new technologies that expand the total amount of oil and
gas available and are usually more technically complex and
expensive to extract than conventional resources.
Important questions in the debate over unconventional
petroleum resources include the extent to which they (i) exist,
(ii) are technically and economically extractable, and (iii)
will be legally administratively feasible to extract outside
Figure 1, showing estimated natural gas reserves of the
United Kingdom, demonstrates how variable estimates
of shale gas resources can be. In the case of the United
Kingdom, resource estimates differ dramatically depending
on whether offshore resources are taken into account.
3.2 The global market context for unconventional
oil and gas
Until the mid-2010s, conceptualizations of the new role
of unconventional oil and gas in the global energy sector
were based largely on developments in the United States,
where the production of rst unconventional natural gas and
then unconventional oil surged (for oil, see Figure 2). These
surges led to a fall in the price of natural gas (see Figure 3),
reduced oil imports (see Figure 4) and a fall in the price of
West Texas Intermediate (WTI) crude oil relative to Brent
crude oil (see Figure 5).
The effect of unconventional oil and gas developments
on the global petroleum sector depends on the degree to
3520 Energy vs. Development
Onshore shale gas
Offshore shale gas
0 200 400 600 800 1000 1200
Figure 1.British conventional and shale gas reserves. Source: Created by author using data from EIA, 2013a; EIA, 2013b; British
Geological Survey, cited in Carbon Brief, 2012; British Geological Survey, cited in Reuters, 2012.
2000 2002 2004 2006 2008 2010 2012 2014
1000 Bbl per day
Figure 2.US production of shale oil. Source: Created by author
using data from Rappaport, 2011.
which the world oil and gas markets are integrated—not
with each other, but each of the two markets in their own
right. The received wisdom is that oil markets are globally
integrated, but gas markets are not. This entails differing
impacts of growing production of unconventional oil and of
unconventional gas. The effect of unconventional oil should
reach further around the world, but be less pronounced within
the countries and regions where it is developed; the effect of
unconventional natural gas should be greater in the countries
and regions where it is produced, but less at the global
level because of the disconnectedness of gas markets. This
is illustrated by the limited impact of the increase in US
production of unconventional natural gas on European gas
prices, shown in Figure 3.
These assumptions need qualication. Oil prices in
different parts of the world converge in the long term,
2000 2002 2004 2006 2008 2010
USD per million Btu
Figure 3.EU and US natural gas prices. Source: Created by author
using data from BP, 2012a.
but there are short- and middle-term bottlenecks between
markets. The divergence between the prices of Brent and
WTI crude oil blends in the early 2010s is one example
of this (see Figure 5). Brent, the world’s most important
benchmark crude, is based on oil extracted in the North Sea
and is traded in the Atlantic Basin. WTI is traded at Cushing,
Oklahoma, and is mainly used in central parts of the United
The divergence in the pricing of these two benchmark
crudes was caused by the accumulation of oil in the US
Midwest, due, inter alia, to a surplus generated by the uncon-
ventional oil and gas developments in combination with a
lack of transport infrastructure to take oil out of the region.
Thus, during this period, the impact of shale developments
on other parts of the world market was limited, although
the resultant decline in US oil imports reduced the country’s
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3521
Figure 4.US imports of oil and oil products. Source: Created by
author using data from EIA, 2014b.
Figure 5.Price of Brent versus WTI crude oil 1998– 2012. Source:
Created by author using data from World Bank, 2012, in Index
energy dependency and might affect its approach to interna-
While oil markets may not be as connected as is
sometimes thought, gas markets may prove to be more
connected than assumed. Two concurrent developments
to bear in mind are the steady geographical extension
of gas pipelines and grids, and the growth in the global
trade in liqueed natural gas (LNG). The building of
the Turkmenistan-China gas pipeline is one example. By
connecting with China’s domestic trunk pipelines, this
pipeline makes it possible to transport gas some 7000 km
from Turkmenistan to Shanghai. Turkmenistan is already
connected via Russia to the European pipeline grid, which
extends from southern Spain to the United Kingdom and
Finland (Anker et al., 2010). At the same time, there are
attempts at liberalizing the European gas market, inter-
connectors are being built between the various national
grids, and European countries are steadily expanding
the number of regasication terminals that can receive
LNG by ship. Such developments contribute to the inte-
gration of markets for natural gas in various parts of the
world, gradually making them less disconnected than in
Having dealt with the basic aspects of unconventional oil
and gas developments and the context within which they
occur, the next sections turn to some possible consequences.
3.3 US shale gas and EU energy dependency on
One of the main consequences attributed to the North Amer-
ican shale gas revolution was the lowering of natural gas
prices in Europe in the early 2010s, by causing LNG cargoes
destined for the United States to be rerouted to European
ports (Szalai, 2012; Cunningham, 2013: 5; Bradshaw, 2014:
67–68). This in turn is often held to have made it possible to
reduce the European Union’s (EU’s) energy dependency on
Russia. However, that is at best a simplication. As Figure 6
shows, apart from growth in imports of LNG from Qatar,
there was little increase in LNG cargoes to the EU during this
period. Prices were probably affected more by the concurrent
nancial crisis that brought demand down, than by changes
on the supply side.
In the longer term, however, as the US natural gas market
is expectedly opened for export, North American shale gas
could still have a more signicant and direct impact on
the EU’s energy dependency on Russia. The cyclical spats
between the EU, Russia, and the Ukraine— in 2006, 2009,
and 2014—certainly encourage actors who are worried about
EU energy dependency to seek diversication, and have
been a driver for the rapid growth in the number of LNG
regasication facilities in Europe. This is occurring in spite
of the fact that Russian gas stands for only 5-6% of the EU’s
total energy supply (see Figure 7).
The role of North American LNG in Europe will also
depend on developments in the Asia-Pacic LNG market. At
present, prices are higher in Asia than in Europe, so North
American exporters will logically prioritize that market.
However, should the Asia-Pacic market be deluged by
natural gas from Australia, Russia, and (perhaps, in the
future) East Africa, a North American–European natural gas
trade connection might become more salient.
3522 Energy vs. Development
2002 2004 2006 2008 2010
Percentage of extra EU-27 imports
Figure 6.Origin of EU natural gas imports. Source: Created by author using data from BP, 2012a, 2012b; Eurostat, 2012.
Percentage of total, boe
Figure 7.Russian energy, share of EU consumption by energy
type. Source: Created by author using data from Eurostat, 2014.
3.4 Effects on relationships between different
countries and regions
This and the following section examine how increasing
extraction of unconventional oil and gas may affect exporting
and importing countries and the interdependency between
them. It starts by looking at oil exporters and importers at the
general level, then turns to export–import interdependencies
between specic regions, and nally surveys the main bilat-
eral trade relationships.
Figure 8 shows how the vast majority of world oil exports
come from the countries of the Middle East, with the
countries of the Former Soviet Union (FSU) rising to become
the second-most important exporting region. This means
that most of the oil exporters sensitive to falling demand
and/or prices are now likely to be found in these two
From Figure 9 we see that the main importing regions
are the United States, Europe, and Japan, but with imports
to the rest of the world growing steadily from around 1992
onwards. In 1980, the OECD countries stood for around 75%
of world oil imports, whereas by 2020 they will probably
stand for less than half. Although the BP data underlying
these gures do not—oddly enough—disaggregate China
from the rest of the world, it is clear that Chinese imports
play a large part in this sea change. Indeed, the very fact that
BP chose not to disaggregate China from the rest of the world
is perhaps indicative of how much more important China is
nowadays than a few decades ago when BP started collecting
This is evident in Figure 10, which shows that China over-
took the United States as the world’s largest oil importer
in the fall of 2013. This gure also brings out the striking
symmetry between the decline in US and rise in Chinese oil
imports. China is now even more dependent than the United
States on energy imports—not only because its volume
of imports is greater but also because domestic produc-
tion is smaller. As regards the continuing functioning of
the economy and society, China is thus more vulnerable to
supply disruptions than the United States. This makes the
international military and political involvement in the Middle
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3523
Rest of world
Former Soviet Union
South and Central
Figure 8.World exports of oil by country. Source: Created by author using data from BP, 2013.
Figure 9.World imports of oil by country or region. Source:
Created by author using data from BP, 2013.
East, where the United States is heavily represented with
forces and allies, whereas China has scant foothold, even
Further, it means that China has an even greater
interest in the promotion of unconventional oil and
gas—anywhere in the world—than the United States, as
it reduces the dependency of the entire world oil market
on the Middle East. The best thing for China would, of
course, be for unconventional resource to be developed
within China itself, as that would be of direct benet
to its economy—but also developments elsewhere that
contribute to diversifying and thus stabilizing the world
supply of oil and gas are a boon to China. For this
reason, the US shale boom should be recognized as a
development highly positive for China. Without it, both
countries would be paying more for their oil than they
The case of China’s increasing import dependency
and fragile energy security illustrates a key aspect of
the triangular relationship between import dependency,
energy security, and conict. Rising imports are driven
by industrialization and economic growth. Thus, national
energy supplies tend to become more vulnerable at the same
time as those countries become stronger, economically, and
militarily—a potentially dangerous combination.
The ipside of this growing energy dependency of
China and other emerging economies on supplies from
the Gulf countries and other major oil and gas exporters
is that the importance of the new importers increases.
The exporters once focused almost exclusively on their
markets in the United States and other OECD countries,
whereas now they increasingly have an interest in the
Chinese economy and politics. It may sound paradox-
ical, but in this regard they might be considered “rising
Figures 11 and 12 provide graphic illustrations of the main
regionally specic oil-trading relations in the world. We
see that the most intense trade relationship is that between
oil exporters in the FSU (Azerbaijan, Kazakhstan and
Russia), and oil importers in the EU. Other major oil-trade
routes go between North Africa and the United States, and
3524 Energy vs. Development
US net imports
China net inmports
2011 2012 2014 2015 (forecast)2013
Million bbl per day
Figure 10.Comparison of net petroleum and liquids imports for China and the United States. Source: Created by author using data from
Other Asia Pacific
Other Asia pacific
South and Cent. America
Former Soviet Union
South and Central America
Other Asia Pacific
Figure 11.Top 25 intensive bilateral oil trade relationships in 3D. Source: Created by author using data from BP, 2013.
between China, Japan, and India and the Middle East. If
unconventional oil and gas are developed mainly in North
America, then the relative importance of the other interre-
gional relationships is likely to increase. Should, however,
the extraction of unconventionals spread to the rest of the
world, we might see a general decline in the importance
of the Middle East and other conventional oil-exporting
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3525
- 2,000.0 4,000.0 6,000.0 8,000.0 10,000.0 12,000.0 14,000.0
South and Cent…
Rest of World
Thousand barrels per day
South and Central
East and Southern
Other Asia Pacific
Figure 12.Top 25 bilateral oil trade relationships in 2D. Source: Created by author using data from BP, 2013.
In any case, any changes are likely to affect US mili-
tary engagement in the Middle East, the status of Israel in
international affairs, relationships with Russia, and interests
in North Africa. It is impossible to predict what the exact
effects will be, except that there are likely to be changes in
foreign policy, levels of engagement, and the willingness to
make sacrices such as loss of lives in military conict.
It is not only the relationships and power balance between
exporters and importers that may change: also, the power
balance between various importers may be impacted. If
major unconventional oil and gas developments are largely
limited to the United States, this may affect the China– US
balance of power. There has already been a partial devel-
opment away from a situation in which the United States
was dependent on oil supplies from unstable Middle Eastern
countries and spent considerable amounts of money in
seeking to secure these supplies, while China was neither
affected nor involved to the same extent; to a situation in
which the United States becomes far less vulnerable to
supply disruptions in the Middle East, China is far more
vulnerable, and the United States still controls the strategic
sea lanes of communication. Even just, the prospect of
such a development could trigger a rapid expansion in
Chinese naval capacity and heightened naval competition
between China and the United States. To some extent, these
developments have already started; and although they may
make some sense in terms of which country has the greater
stake in the Gulf, they also have implications for how the
increasingly hot conicts in the East and South China Seas
3.5 Consequences of unconventional oil for OPEC
A major political factor in the global petroleum sector is
the Organization of Petroleum-Exporting Countries (OPEC),
the cartel of major oil exporters, many of which also have
some degree of overlap in their ideological and political
outlook. For example, OPEC member countries Algeria,
Ecuador, Iran, Iraq, Libya, and Venezuela are all run by
governments that espouse anti-American stances while also
being subjected to various degrees of Western criticism over
their own record on human rights and democracy. However,
Saudi Arabia is the most important oil producer in OPEC
and an important US partner, although there are obviously
important ideological and cultural differences between the
two countries that might play out differently under other
circumstances. Most of these countries are highly dependent
on continued high oil prices for their socioeconomic welfare
and for the long-term political survival of their governments.
OPEC had its heyday in the 1970s, when it stood for over
half of world crude oil production and over 80% of world
exports (see Figure 13). After a trough in the mid-1980s,
the organization’s share of output and exports grew again.
Although OPEC today does not wield the kind of power that
3526 Energy vs. Development
OPEC crude oil production as a share of world production
OPEC exports as a share of world crude oil exports
OPEC exports as a share of world crude oil production
Figure 13.OPEC share of world crude oil production and exports.
Source: Created by author using data from OPEC, 2013: 30.
it did during the oil crises of 1973 and 1976, it controls a large
enough share of world oil production and especially exports
to contribute to keeping prices high. If OPEC’s reserves were
not controlled by the governments of the OPEC countries
through their national oil companies but by Western-based
international oil companies such as BP and ExxonMobil
pursing a maximalist commercial logic, it is likely that oil
prices would be signicantly lower.
And it is on this background that one must try to under-
stand the impact of unconventional oil and gas. For OPEC,
the growth in conventional oil and gas resources until the
mid-2010s was not an issue, as oil prices remained stable at
historical highs. However, should the most optimistic expec-
tations for the expansion of unconventional oil and gas in
the United States and the rest of world come true, that could
contribute to driving oil prices downwards, reducing OPEC’s
income. Alternatively, OPEC could reduce its production,
but would lose income all the same. And if such a devel-
opment were combined with reduced consumption due to
prolonged global nancial troubles, a crash in China and/or a
more effective successor regime to the Kyoto Protocol, then
that would pose a serious challenge to the power of OPEC.
Because most OPEC oil—especially in the Gulf
countries—is cheap to produce, OPEC would continue
to play a central role in world oil supply under a lower
price scenario, whereas it would be the most expensive
unconventional oil and gas developments that would be
canceled. But OPEC would lose its pricing power above
the cost levels for producing unconventional oil and could
be selling at lower prices than during the rst two decades
of this century. On the other hand, although the downward
price pressure exerted by unconventional oil is limited by
the high cost of producing unconventional resources, that
cost could change as technologies evolve. If the cost of
producing unconventional oil falls, it will drag OPEC’s clout
down with it.
An additional concern for the OPEC countries is that most
of them are heavy energy subsidizers with rapidly growing
populations. As Figure 14 shows, almost all of the OPEC
countries are among the world’s 25 largest subsidizers of
fossil fuels, and Iran and Saudi Arabia are the two largest
subsidizers in the world. As a consequence, as reected
in Figure 15, the capacity of some OPEC countries for
export is dwindling. As the red lines creep up toward the
blue lines, the OPEC countries will be rendered increasingly
vulnerable to revenue losses from reduced export prices
(Cheon, Urpelainen, and Lackner, 2012; Krane, 2013, 2014).
In Egypt, these lines crossed only a few years before the
Arab Spring that overthrew President Hosni Mubarak; also in
Indonesia the lines have crossed, causing the country to leave
OPEC and coinciding with a strengthening of democracy.
Energy subsidies are a simple way for otherwise weak
states to give something to the population, so they are partic-
ularly common in countries with high levels of corruption
and low levels of governance (Overland, 2010a, 2013; Over-
land and Kutschera, 2011). Such subsidies do not make sense
for the governments of advanced states, but they can be
a means for the governments of weaker states to stay in
power. If unconventional oil and gas and/or climate policy
put downward pressure on the price of oil, exporters will have
less disposable income to maintain subsidies. Subsequent
subsidy cuts could lead to political upheaval and potentially
regime change in many OPEC countries and other major
oil exporters. On the other hand, lower prices for oil and
gas would reduce the price difference between exports and
domestic subsidized sales—but probably not enough to solve
the problem for the subsidizing states.
If unconventional oil and gas extraction were to rise suf-
ciently for the United States and perhaps China to become
major exporters, they could start competing with OPEC,
lowering oil prices and further weakening the cartel. On
the other hand, then they would also start sharing OPEC’s
interest in high oil prices, but that would probably not be
sufcient for them to limit their exports or otherwise coor-
dinate with OPEC. The case of Russia is illustrative. Russia
has strong historical and political ties with important OPEC
countries such as Iran and Venezuela, but has still not shown
any interest in joining OPEC and has rapidly pushed up its
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3527
0.00 20.00 40.00 60.00 80.00 100.00
Figure 14.Economic cost of fossil-fuel subsidies for top 25
economics. Source: Created by author using data from IEA, 2011.
oil exports to become the world’s second-largest exporter
after Saudi Arabia—thus limiting OPEC’s market share. The
United States, which does not have the same relationships
with most OPEC member countries, is even less likely to
actively support OPEC’s interests.
If China or the United States were to become a major oil
exporter, it could be an important factor in the emerging
Figure 15.Oil production and consumption for Egypt, Indonesia,
Iran, Saudi Arabia, and Venezuela. Source: Created by author using
data from OPEC, 2013.
superpower competition between the two countries, by
improving their trade balance and making them less depen-
dent on the outside world and therefore freer to interact with
other countries as they please. If the United States, but not
China, were to become a major oil exporter on the back of
growing unconventional oil production, it might help the
United States withstand the competition from rapidly rising
China and remain the only superpower and vice versa. But
at least in the rst decade and half of the 2000s, the United
3528 Energy vs. Development
States was reducing its imports on the back of growing
production of unconventional oil and gas, whereas China
had made little progress on unconventionals and its imports
were rising. This may also be indicative of another aspect of
the rivalry between the two countries: the United States has
always had the technological and innovative upper hand,
with China and other countries trying to catch up. In the
case of unconventionals that is still very much the case.
3.6 The resource curse and democracy
Windfall revenue from oil and gas is closely associated with
the resource curse—the paradoxical notion that resource
revenue may have a negative net impact on the develop-
ment of countries. The resource curse literature includes
three main branches, one on economic mismanagement, one
on conict over resources, and one on authoritarianism.
Although the literature on authoritarianism has recently been
criticized (Haber and Menaldo, 2011), this criticism is weak-
ened by the datasets used and resource revenue remains asso-
ciated with authoritarian rule, especially in the Arab world.
For the governments of countries such as Saudi Arabia and
Qatar (both non-democratic monarchies highly dependent on
oil and gas revenue), a scenario in which unconventional
oil and gas production reaches sufciently high levels to
lower oil prices involves a double risk. Firstly, oil prices
may fall, reducing the cash ow of the governments and thus
their ability to keep the population satised and themselves
in power. Secondly, as the energy dependence of the West
on these countries is reduced, Western governments may
become more critical and confrontational about human rights
issues. The pressure of these two simultaneous developments
may cause governments to fall.
As non-democratic countries rarely if ever ght each other,
a reduction in resource-supported authoritarianism could
also lead to a reduction in the number of interstate conicts
in the world. Non-democratic, oil-fueled states that have
been involved in violent interstate conicts in recent decades
include Iran, Iraq, Libya, and Russia. Had not the rulers of
these states had access to large revenue ows from oil and
gas, it is possible that not all of these conicts would have
The simultaneous effect of reduced dependency in oil-
importing countries could further reinforce a trend away
from authoritarian rule in oil-exporting countries. It is widely
assumed that petroleum-importing countries are reluctant to
criticize or otherwise put pressure on the countries that they
import oil and gas from (Hancock, 2007; Human Rights
Watch, 2010). This applies in particular to relations between
the United States and Saudi Arabia (Human Rights Watch,
1992: 49; Hancock, 2007: 57–59), but also more broadly to
relations between industrialized, democratic importers and
authoritarian exporters. It is therefore possible that reduced
energy dependency in such bilateral and multilateral rela-
tionships might lead to increased criticism and pressure on
non-democratic regimes, to more international friction—and
ultimately to a more democratic world.
3.7 Where are the unconventional resources
Apart from the energy dependencies between countries
linked to the trade relationships already discussed, the
change of status from importer to exporter—or vice
versa—is a big change for any country. The difference is
that between making money and losing money—potentially
on a large scale. If the extraction of unconventional oil and
gas keeps spreading, it is important to be aware of just where
the resources are located.
Figures 16 and 17 show the 10 countries that have the
largest shale reserves in the world. The rst interesting thing
to note is that eight of the countries are already among
the world’s major oil or gas exporters: Algeria, Australia,
Brazil, Canada, Libya, Mexico, Russia, and Venezuela. As
long as their conventional reserves last, these countries are
not likely to put a lot of effort into developing unconven-
tional resources—it is more protable for them to focus on
their conventional onshore reserves. But as these reserves
are depleted, unconventional oil and gas may become more
attractive, perhaps more so than offshore oil and gas, espe-
cially in the Arctic, where costs have skyrocketed (Lunden
et al., 2013; Overland et al., 2013; Overland, 2011).
The major oil and gas importers that have signicant
reserves of unconventional oil and gas include China,
Pakistan, South Africa, and the United States. Thus, until
new resources are identied elsewhere, it is to these coun-
tries that we should look for any potentially major changes
of fortune as a consequence of unconventional oil and gas.
There are no European countries except Russia on this
list. However, both Ukraine and Poland have unconventional
natural gas reserves; if these should prove even moderate in
a global context, this might have major political implications
as regards their energy dependence on Russia.
The global trade in oil is asymmetric, with many importer
countries and a few exporter countries. Consequently, the
impact of unconventional oil and gas may be asymmetric
as well. The largest bars in Figures 16 and 17 represent
the category “Others.” This indicates that, although other
countries have smaller reserves, there exist many such
countries—which in turn means that, although there may
not be so many new big exporters, there may be many more
self-sufcient or partially self-sufcient countries. For each
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3529
Figure 16.Technically recoverable shale gas reserves, top 10 coun-
tries. Source: Created by author using data from EIA, 2013c.
Figure 17.Technically recoverable shale oil reserves, top 10 coun-
tries. Source: Created by author using data from EIA, 2013c: 10.
such country, that development would be positive, but it
probably will not change the world as a whole dramatically.
A more signicant aspect of such a development would be
the weakening position of the major exporters. It is logical
to expect that changes would be most felt in exporting
countries, due to the asymmetry of the global trade in oil.
Throughout the oil era, the majority of the world’s countries
have been siphoning off a bit of their economy and handing
it over to a smaller number of major petroleum exporters,
and the sum of all those payments has represented windfall
incomes for the exporters. If the old importers reduce their
energy dependency, the security and economy of each
of them will improve a bit, whereas the situation of the
exporters may deteriorate much more.
It should be noted that the data in Figures 16 and 17
concern technically recoverable reserves, that is, relatively
certain reserves that it is technically possible to extract with
current technology. This does not necessarily mean that it is
economically viable to extract them. On the other hand, these
data do not include any new reserves that may be found in the
future—which may or may not be large.
It may also be that unconventional resources have been
mapped better in countries that have developed petroleum
industries, and where more geological exploration has been
carried out and thousands of wells have been drilled over
decades. On the other hand, it may also be that unconven-
tional resources are more likely to be found in areas where
there are also conventional reserves. Oil and gas are the result
of the sedimentation of organic material, which has tended to
occur more in some locations on the earth’s surface than in
The size of individual unconventional oil and gas elds
in a country may be as important as the overall size of the
country’s unconventional reserves. Economies of scale for
infrastructure, stafng, and legal work are easier to achieve in
connection with one large reservoir than with a multitude of
small elds in many different locations. That also means that
large elds are more likely to be developed than small ones.
Figures 18 and 19 cover the largest known shale oil and
shale gas formations in the world, respectively. Natural gas
is more cumbersome and expensive to transport interconti-
nentally than oil and therefore more likely to be developed
where there exists a large energy market that is integrated in
legal, nancial, and infrastructure terms. The importance of
upstream factors for the shale revolution in the United States
is often emphasized: the prior presence of a large number
of drilling rigs and private land ownership including subsoil
rights. But the importance of the downstream pull of the
large and integrated US market is largely overlooked. The
gas markets of most other countries are not even close to the
Eagle Ford Shale
Figure 18.World’s largest known shale oil formations. Source:
Created by author using data from EIA, 2012: 58; EIA, 2013c:
3530 Energy vs. Development
Eagle Ford Shale
Figure 19.World’s largest known shale gas formations. Source: Created by author using data from EIA, 2012: 58; EIA, 2013c: Attachment
size of the US market, and this may slow down or limit the
spread of shale gas extraction.
As oil is easier to transport and thus export to the world
market, unconventional shale oil may be more important
that natural gas, especially in countries and regions with
smaller integrated markets. As Figure 18 shows, the largest
elds are Bazhenov (Russia), Vaca Muerta (Argentina), Sirte
(Libya), La Luna/Capacho (Colombia/Venezuela), and Qing-
shankou (China). Russia’s Bazhenov formation, if counted
as a single area, outclasses the rest. The Russian authorities
and state companies aim to develop the Bazhenov forma-
tion during the coming years, but their ability to achieve
rapid development there is not certain. Even if they should
succeed, that would not dramatically alter Russia’s already
well-established status as the world’s largest energy exporter.
Argentina, whose Vaca Muerta shale oil formation is roughly
the size of Belgium, is one of the countries that could be
most affected by shale oil. China, which has several major
unconventional oil elds, may also be able to extract substan-
tial amounts. That could help break its growing dependency
on imports (much of which come from the Gulf countries);
however, that dependency is already so great and has been
growing at such a rate that domestic shale resource devel-
opments are unlikely to result in a fundamental change of
High oil and gas prices encourage producing countries
to increase their output. Russia is a particularly relevant
case, as it has been living the past 20 years on oil and gas
elds that were developed during the Soviet period and
are now declining. It is therefore now nally making an
effort to develop new elds. However, it would also be
possible for Russia to instead develop renewable sources
of energy—which are also abundant in Russia—for the
domestic market, thus freeing up more oil and gas for export.
So far however Russia has made little progress on renewable
energy (Kjaernet and Overland, 2009; Overland, 2010b). It
would take a highly effective global climate agreement to get
Russia to make this switch in priorities.
3.8 Environmental aspects of fracking
Shale oil and gas are extracted by means of hydraulic
fracturing (fracking). Fracking involves cracking of the
rock by using pressurized water mixed with sand and
chemicals to keep the cracks open. The environmental
consequences of hydraulic fracturing are hotly debated. This
debate rst centered on the United States, and then spread
to other countries with shale gas resources—especially
France, Poland, and the United Kingdom. The debate
concerns the following potentially environmentally detri-
mental aspects of shale gas extraction: overconsumption
of water, groundwater pollution by gas and/or fracking
chemicals, noise and dust from increased trafc to well
sites, release of methane into the atmosphere, and increased
seismic activity. Here, a brief summary is provided of
the main environmental issues at stake and the opposing
views. No attempt is made to draw conclusions, as
many of these issues are technically complex and remain
As water is the main ingredient in fracking, signicant
amounts of water are inevitably used. This has been raised
as a major concern by many commentators (Rahm and Riha,
2012: 16). However, the fracking industry argues that most
energy production consumes water; that fracking does not
consume more water than most other energy sources and is
therefore not a particular problem except in locations where
there is already a severe water shortage (see Scott et al.,
2011 cited in Uliasz-Misiak, Przybycin, and Winid, 2013: 3;
Maugeri, 2012: 59–60; International Association of Oil and
Gas Producers, 2012).
A second issue related to water is the claim that ground-
water supplies may become contaminated (see Stark et al.,
2012: 5). While industry representatives argue that the use
of chemicals, below 1% of fracking liquid, is insigni-
cant, Maugeri (2012: 60) points out that, given the large
amounts of liquid involved, that may still correspond to
100,000 kg of chemicals per well. However, the Interstate
Oil and Gas Compact Commission (IOGCC), which has 30
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3531
member states in the United States, reported in 2009 that
there was not a single case where it had been conrmed that
fracking had contaminated groundwater (Stark et al., 2012:
6). According to the International Association of Oil and Gas
Producers (2012), the chemicals used in fracking are used
in many domestic cleaners, cosmetics, and food, and there-
fore pose little environmental risk. Uliasz-Misiak, Przybycin
and Winid (2013: 5) note that freshwater aquifers are usually
found at depths of up to 300 m, while shale oil and gas is
extracted from rock that may be located several kilometers
below ground level. However, Maugeri (2012: 59) mentions
a water well in Dimock, Pennsylvania, that exploded in 2009,
apparently because of the high concentration of methane.
Another criticism of fracking concerns the increased trafc
to well sites. Because production from fracked wells declines
faster than from conventional oil and gas wells, many more
wells need to be drilled, entailing more movement of equip-
ment, drilling crews, and water (Stevens, 2010a: 39; Kolb,
2014: 121). This can lead to a surge in trucks passing through
previously quiet rural areas.
Another criticism of fracking concerns the release of
methane, a potent climate gas. According to some sources,
however, fracking does not entail the release of more
methane than does conventional gas production (or oil
production, because much oil comes with associated natural
gas) (Kolb, 2014: 119).
The nal worry related to fracking is the possibility that
it might trigger earthquakes. According to Fischetti (cited in
Maugeri, 2012: 61), 10 small earthquakes possibly caused by
fracking struck Ohio, a state that is not normally earthquake-
prone, in 2011. There has also been concern over possible
linkages between fracking and earthquakes in the United
A systematic comparison by Louwen (2011: 54) concludes
that shale gas extraction leads to emissions of 5.41 gCO2-
eq/MJ compared to 2.81 gCO2-eq/MJ from conventional gas.
However, if the conventional gas is produced in Russia, it
2-eq/MJ, not all that much less than shale
gas. Emissions from coal are signicantly greater, so when
competing against coal, shale gas has a distinct advantage
under a strict policy on greenhouse gas emissions.
Another comparison by Jenner and Lamadrid (2013: 446)
nds that shale gas consumes 606–2016 liters of water
per megawatt hour (l/MWh), whereas conventional gas
consumes 576–1986 l/MWh and coal 1981 –1402 l/MWh.
The broad ranges of possible water consumption reect
the great variation in geology, extraction methods, and
regulations. Such variations are so great, and change over
time so rapid, that it is difcult to make good comparisons
of the environmental aspects of these different energy types.
At this stage it is too early to draw conclusions on the envi-
ronmental aspects of shale gas and oil extraction. Any broad
conclusions are going to have to take into account experi-
ence from a large number of wells over time and in different
locations—as well as new developments in technology and
new practices (cf. Rahm and Riha, 2012: 22). What is clear is,
rstly, that shale developments will lead to political (as well
as scientic and expert) debate over the environmental conse-
quences; and, secondly, that how those debates play out in
various countries will affect the evolution of unconventional
oil and gas extraction. Politics is as likely to affect unconven-
tionals as unconventionals are likely to affect politics.
4 CLIMATE POLICY
As the references in the rst half of this chapter show,
unconventional oil and gas developments have led to a urry
of analysis of the possible changes they could cause in oil and
gas markets, and the political and geopolitical consequences
of such changes. It is striking how much less analysis there
has thus been of the consequences of the possible emergence
of an effective global climate policy for the petroleum sector.
This lack of research is indeed odd, considering that around
36% of global greenhouse gas emissions come from the
combustion of oil and 20% from natural gas (IEA, 2012:
8). This discrepancy is all the more paradoxical considering
that climate change has been on both the public and social
science agendas signicantly longer and on a larger scale
than unconventional oil and gas and there has thus been more
time to conduct and publish research on it.
What little analysis exists of the consequences of climate
change for the petroleum sector is mostly from the early
2000s, with a peak around 2002 (Kolk and Levy, 2001;
Springer, 2002; Van den Hove, Le Menestrel, and de Bettig-
nies, 2002; Le Menestrel, van den Hove, and de Bettig-
nies, 2002; Skjaerseth and Skodvin, 2003; Barnett, Dessai
and Webber, 2004). Given the fast pace of change in the
petroleum sector, in climate science and in climate politics,
much of this literature is now outdated.
An exception is the literature on stranded carbon assets,
which blossomed in 2013 (see Ansar, Caldecott, and
Tilbury, 2013; Generation Foundation, 2013; Leaton et al.,
2013; Spedding, Mehta, and Robins, 2013). This literature
(discussed below) remains small and largely conned to
online reports produced by nongovernmental organizations
(NGOs), with little in terms of academic scholarship.
Considering the media coverage of the International Panel
on Climate Change, the international effort put into nego-
tiating a follow-up treaty to the Kyoto Protocol and the
discourse on climate change from politicians and even some
oil companies, it is surprising that there has been so little
attention to the consequences of a stricter climate policy for
the petroleum sector.
3532 Energy vs. Development
That is not to say that there is no research on the geopolitics
of climate change—but it largely ignores the whole topic
of the geopolitics of the petroleum sector. For example,
a special issue of the journal Climate Policy from 2013
on the changing geopolitics of climate change pays scant
attention to the question of how climate policy will affect
petroleum exporters and importers or oil companies (Streck
and Terhalle, 2013). The topic has also been ignored in other
analyses of geopolitics and climate change that might have
been expected to cover it (e.g. Falkner, 2010).
One possible reason for this lacuna is that many people in
the petroleum industry are either climate skeptics or simply
repress any thoughts about climate change (Farrow, 2000:
195; Skjaerseth and Skodvin, 2003: 178; Sim, 2009: 3). They
see the climate agenda as something that has been imposed
from the outside. By contrast, unconventional oil and gas is
very much in line with the internal logic of the petroleum
industry, and is being driving by the industry itself.
4.1 Energy diversication versus vulnerability:
China, the EU, the United States
Bridge et al. (2013: 339) argue that a transition to a low-
carbon energy system can be both a “creative and destructive
process that signicantly changes how different places are
related to each other, economically, politically, and even
culturally, and at a range of different scales.”
The EU is often seen as particularly energy-dependent and
vulnerable, becuase of its dependency on Russian natural
gas. However, as mentioned above and shown in Figure 7,
Russian natural gas in fact makes up only 5– 6% of EU
energy consumption, although some Central and East Euro-
pean countries are highly dependent on it. As Figure 20 indi-
cates, the EU is no less diversied in its energy sources than
China or the United States, and its overall energy consump-
tion is far lower than that of the United States, especially if
one takes into account the fact that the EU has a much larger
population. And as Figure 21 shows, particularly in terms of
electricity supplies, the EU has a far more diversied supply
than China (which relies heavily on coal) or the United States
(which relies heavily on coal and natural gas).
China’s entry into the photovoltaic solar market in the
early 2010s lowered prices around the world, and the 2014
deals between Chinese companies and the Russian compa-
nies Gazprom (for pipeline gas) and Novatek (for LNG)
strengthened China’s future access to natural gas supplies.
But overall, China remains heavily, and increasingly, depen-
dent on coal—and that could be a problem for China under
a stricter global climate policy. In contrast, the EU has made
rapid progress on the expansion of renewable energy and is
reducing its dependency on other energy sources, especially
crude oil (see Figure 22). Thus, of the three big industrial
blocs, the EU is best positioned for a stricter global climate
policy, and is—unsurprisingly—one of its main champions.
4.2 OPEC and other oil exporters
The OPEC countries have feared attempts to establish a
stricter and more global climate policy, seeing them as a
threat to their oil export revenues, and possibly even their
statehood (Bradshaw, 2010: 285). Also Russia, the world’s
largest oil exporter outside OPEC, has been skeptical to
wards climate change and climate policy. Unlike China and
the United States, it is a signatory to the Kyoto Protocol—but
this has cost Russia little, as the Protocol takes 1990 as its
basis year and Russian emissions fell after that, due to the
collapse of the Soviet Union. A future and more effective
global climate agreement would be more difcult for Russia
to digest and might be resisted more actively.
To mitigate the risk of a more effective global climate
policy, some Middle Eastern countries have been investing
in renewable energy to diversify away from oil. One example
is Abu Dhabi’s Mazdar City. But these investments remain
small compared to the revenue ows from oil and gas, and
it is not clear how they might be turned into new sources of
Loulou et al. (2008) examine scenarios of introducing
strict climate-change targets and their impact on the OPEC
countries. They nd that while OPEC’s export volumes
would remain relatively stable under such scenarios, prots
would be reduced. It is thus likely that OPEC will continue
to resist a strict global climate-change regime with high
emission reduction targets (Lolou et al., 2008: 21– 22). One
development that might change this situation is if the world’s
oil exporters, dominated by the arid OPEC countries of the
Middle East, come to see climate change as such a serious
threat to their own ecology and water supply that they start
taking it seriously (Brown and Crawford, 2009). However,
the threat would have to be seen as very great indeed, as
the governments of these countries are heavily dependent on
petroleum revenues for maintaining socioeconomic stability
and their own popularity.
An effective climate policy would affect not only the
fortunes of oil exporters but also other countries that are
dependent on intensive trade patterns. For example, a stricter
climate-change policy could take the form of a toll on
carbon-based imports and be applied to all internationally
traded goods (Matoo et al., 2009: 20). Such a policy would
increase trade costs in the developed countries, while posing
an obstacle to the trade expansion of developing countries.
Matoo et al. (2009: 20) estimate that a 20% tariff on Chinese
and Indian imports would result in 16– 21% reduction in
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3533
China USA EU World
Mln. tonnes of oil equivalent
Hydro electric power
Figure 20.World energy consumption by major bloc and energy source, 2012 compared to 2002. Source: Created by author using data
from BP, 2002; BP, 2013.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Coal Natural gas Oil Nuclear Wind and geothermal Solar Biomass and waste Hydropower
Figure 21.Installed electricity generation capacity by energy source; China, EU, and the United States. Source: Created by author using
data from EIA, 2013d; EIA, 2014c; European Wind Energy Association, 2014.
their manufacturing exports. Similarly, Paavola and Adger
(2006: 603–604) found that introducing a global carbon tax
ranging from US$20 to US$50 per carbon equivalent ton
would increase the overall per capita tax levels in many
countries. If the tax were set at US$20, then the per capita
tax would increase by US$100 in the United States and by
US$40–70 in Europe (Paavola and Adger, 2006: 604).
The potentially negative effect of climate policy on oil
exporters could be thought of either as a side effect or as a
necessary component of an effective policy. As oil exporters
3534 Energy vs. Development
Renewable energy Nuclear energy Total production
Solid fuels Natural gas Crude oil
Figure 22.Changes in EU energy production 2000– 2010 by energy source. Source: Created by author using data from Eurostat, 2013.
sitting on large reserves of oil, the OPEC countries tend to
reinvest signicant portions of their large revenue ows from
the sale of oil back into the petroleum sector, helping to lock
in the system and creating obstacles to an energy transition
(Verbruggen and Al Marchoni, 2010: 5580). In this regard,
the interests of oil exporters and importers are opposed: the
oil exporters would prefer to keep their large revenue ows
to themselves and avoid an energy transition, whereas the oil
importers and countries with a proactive stance on climate
issues would need those revenue ows to nance an energy
transition (Loulou et al., 2008: 22).
4.3 The Sino-Russian axis
The post-Soviet period saw rst a rapprochement and later
increasing strategic convergence between China and Russia
(Braekhus and Overland, 2008). This convergence was
driven partly by ideological compatibility and the nonac-
ceptance of authoritarian regimes by Western countries,
but also in large part by the complementarity in natural
resources (Overland, Kjærnet, and Kendall-Taylor, 2010).
China needed oil and gas, and a country such as Russia
has it. Cooperation makes even more sense because the
two countries share a long border and transportation is thus
relatively easy and safe. However, should a future climate
agreement affect demand for oil and gas, such an interstate
relationship might also be affected. Especially in the case of
coal-dependent China and gas-rich Russia, a stricter climate
regime could just as well lead to a further strengthening of
complementarity as its weakening.
4.4 Fuel substitution
Fuel substitution—the replacement of one type of fuel with
another when it is more advantageous—complicates the
effects of any climate policy, and thus also the geopolitical
effects of such a policy. If a policy is targeted specically at
the petroleum sector, it might accidentally lead to a shift to
coal (Verbruggen and Al Marchoni, 2010: 5579; Vielle and
Viguier, 2007: 844). Consumers and politicians tend to be
more conscious of emissions from gasoline than coal because
they personally tank their cars with gasoline, whereas coal is
mostly used for industrial purposes and for electricity gener-
ation at centralized plants. In order to be effective, a climate
policy cannot focus solely on the petroleum sector, but must
deal with coal as well.
4.5 Unburnable carbon and stranded assets
There has been some discussion of stranded assets in the
petroleum sector as a possible result of climate policy (Ansar,
Caldecott, and Tilbury, 2013; Generation Foundation, 2013;
Leaton et al., 2013; Spedding, Mehta, and Robins, 2013;
Caldecott, Tilbury, and Carey, 2014). This discussion has
focused on the nancial and corporate risks related to the
possible future devaluation of oil company stocks. Little
attention has been paid to the fate of the states that live off
the export of oil and gas, and the fact that the biggest oil
companies are state-controlled: Saudi Aramco is the world’s
largest oil company, and Rosneft is the world’s largest listed
oil company (both in terms of output of barrels per day)
(Rapoza, 2013). In one review of stranded assets, Carbon
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3535
Tracker (2011: 3) goes into the details of the company, stock
exchange and global levels—the entire scale of the nancial
system—without touching on the wealth of nations.
Stranding of assets might be one of the most important
consequences of a stricter climate policy, because it can
have a reinforcing effect on the policy. Financial markets
consist of large numbers of actors attempting to anticipate
the market’s—that is, each other’s—future moves. Markets
therefore tend to move in ock as market participants inter-
pret each other as moving in one direction or another. Should
the notion of stranded carbon assets thus catch on among
a large enough minority of market actors, it might spread
to others trying to anticipate market movements, leading to
accelerating divestment in greenhouse gas-emitting indus-
tries. Even just fears related to possible risks of holding such
assets could in theory start the process.
This process is exactly what the organizations and litera-
ture highlighting stranded assets is actively trying to trigger.
So far they have not succeeded, as the market value of stock
ultimately depends on company prots, which lie outside the
interpretative psychological sphere of stock market actors.
People already own cars and depend on them for transport,
depend on natural gas for heating and coal for electricity,
and so on. The infrastructure that underpins these energy
consumption patterns took many decades to build and would
take many decades to change. Consumers therefore continue
to buy oil, gas, and coal, and the companies that sell them
continue to prot. Financial market psychology cannot over-
rule this, at least not quickly.
In the longer term, however, the stranded assets discourse
may become more important. Should sufcient effort be
made to add alternative infrastructure, as the Germans have
done through their large-scale support for solar power,
consumers may come to have greater choice, reducing
the earnings of fossil fuel companies and allowing the
psychological spirals of market anticipation to kick in.
Another limitation of the stranded assets literature is that
it fails to recognize the importance of the mix of oil and gas
assets in company (and country) reserves. Coal, oil, and gas
are all fossil fuels that lead to greenhouse gas emissions, but
the combustion of oil results in smaller emissions per energy
unit than that of coal, and the combustion of natural gas in yet
smaller emissions than oil. Whether assets become stranded
or not in a given scenario thus depends on what role oil and
especially natural gas play in that scenario. The next section
turns to this question.
4.6 Natural gas as a transition fuel
Perhaps the most important question concerning the effect
of global climate policy on the geopolitics of the petroleum
sector is the role of natural gas. Would a stricter climate
regime lead to more or less use of natural gas? What would
be the consequences for relations between countries?
According to a much-cited report from the IEA, the world
could be entering a “golden age of gas” (IEA, 2011: 1). The
report envisaged a role for gas in lowering greenhouse gas
emissions by replacing other fossil fuels, and thus predicted
the rapid expansion of gas consumption, supplied by, inter
alia, shale gas.
Should such a development come to pass, countries with
large natural gas reserves would benet. The rise of Qatar
as an LNG producer and an increasingly wealthy country
could be a sign of things to come. Qatar has used its
wealth to become a major international research funder,
host the soccer World Cup in 2022, and fend off the Arab
Spring when it wracked other countries in the region. But
as Figure 23 shows, most of the countries with major gas
reserves are already large oil producers. An increase in
the relative importance of gas over oil might therefore not
lead to dramatic changes in the power balance between oil
exporting and importing countries. However, it might lead
to some changes in relative income and power among oil
and gas producers—in particular, a strengthening of Iran,
Qatar, Russia, and Turkmenistan relative to countries such as
Iraq, Nigeria, Saudi Arabia, the United Arab Emirates, and
Venezuela. Particularly important competitive bilateral rela-
tionships that might be rebalanced as a consequence could
be Iran–Saudi Arabia and Iran–Iraq.
Some authors have joined the IEA in its enthusiasm for
natural gas, pointing to its abundance and (assumed) rela-
tively low cost of development and its utility (Moniz, Jacoby,
and Meggs, 2011: 2). The utility argument boils down to the
fact that natural gas is easier to transport than electricity, and
can be used for electricity generation, transport, and heating.
Above all, natural gas advocates cite the lower greenhouse
gas emissions from natural gas than from oil and especially
coal (Uliasz-Misiak, Przybycin, and Winid, 2013: 8). Others
are more skeptical, arguing that renewable energy will be
cheaper in the long term because it has no fuel cost and
risk (Weiss et al., 2013: 3, 6), and that natural gas, akin to
other fossil fuels, is subject to implicit subsidies that will
ultimately be removed (REN21, 2013: 11).
Whether natural gas is to enjoy a golden age as a climate
policy transition fuel will depend in part on developments in
unconventional gas. Stevens (2010b: 39) argues that, in most
countries except the United States, there are fewer incentives
for extracting it, because landowners generally do not hold
subsoil rights. Most signicantly, Hughes (2011: 27–28)
and Howarth et al. (2011: 688) argue that full lifecycle
emissions of greenhouse gases from shale gas are far greater
than the emissions from the nal combustion of the gas
itself. As noted earlier, however, other analyses result in
other conclusions and the large variation and rapid pace of
3536 Energy vs. Development
Billion cubic meters
Figure 23.Natural gas reserves by country. Source: Created by author using data from BP, 2013: 20.
change in this area makes it difcult to provide accurate
numbers. Improving lifecycle analysis for all kinds of energy,
industrial products, and modes of transportation will have to
feature heavily in working out a future climate policy. There
might be surprises in many areas—not only related to shale
gas but, for example, with regard to photovoltaic electricity
or biofuels as well.
In any case, any major increase in the use of natural gas at
the global level will depend in part on expanded use of LNG
to move it around. A key factor in how these arguments for
and against a bright future for gas play out will be the status of
LNG under a stricter climate regime. The next section turns
to this question.
4.7 The role of LNG under a strict climate policy
LNG has become one of the most important areas of devel-
opment in the global energy landscape because it helps
connect different markets (see Figure 24). The Fukushima
nuclear accident brought a surge in demand for LNG from
Japan and higher prices for the whole Asia-Pacic region
(International Gas Union, 2011: 3; Mazza, Blumenthal, and
Schmitt, 2013: 11–12; IEA, 2013: 29). The cycles of polit-
ical tension between Russia and Ukraine contributed to the
rapid expansion in LNG regasication facilities in Europe
(Natural Gas Europe, 2014).
If unconventional oil and gas are to become a global
energy revolution, LNG is likely to play a central role. This
is especially true of unconventional gas, as LNG makes it
possible to transport the gas beyond the pipeline grids of
the national and regional markets to which most trade in
natural gas has historically been conned. But LNG may,
perhaps surprisingly, also play some role in the evolution
and dispersion of unconventional oil extraction. For example,
if LNG helps bring down natural gas prices outside North
America, it may encourage consumers to shift from oil to
natural gas in some usage areas, undermining the high oil
prices needed to support unconventional oil developments.
But the cooling of natural gas involved in creating LNG
is an energy-intensive process. Normally, a signicant part
of the natural gas is burned off to create the energy for this
process, generating further greenhouse gas emissions. Thus,
the future of natural gas as a climate-friendly fuel depends
in part on the CO2footprint of LNG. Preliminary analysis
indicates that the cost of greenhouse gas emissions would
have to be very high to have any impact on the viability
of LNG as opposed to pipelines (Ulvestad and Overland,
2012). But more research is needed, and this remains a
major uncertainty related to the organization of the global
petroleum sector under a stricter climate policy.
4.8 The possibility of a nuclear power renaissance
Japan’s Fukushima accident led to increased skepticism
toward nuclear power in many countries. Public opinion
in Japan was naturally particularly affected, but also in a
country such as Germany the political climate for nuclear
power was strongly inuenced. The resulting shutdown of
nuclear power production has led to signicant greenhouse
gas emissions as electricity has instead had to be produced
from coal and natural gas.
What is however less noticed by the global public is
that many countries—importantly, including China and
India—are continuing to build nuclear power plants. This
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3537
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
LNG Pipeline Total
Figure 24.International trade in natural gas by pipeline and LNG as percentage of global natural gas output. Source: Created by author
using data from BG Group, 2013; BP, 2012b; Jacobs, 2011; Total, 2013.
includes not only developing countries but also indus-
trialized countries such as Finland, France, and Russia.
According to the IAEA (2014), there are 71 civilian nuclear
power reactors under construction. Several countries are
trying to develop safer and more powerful nuclear reactors
and parallel research is being carried out on the use of
reactors that run on thorium rather than uranium.
If there are new developments in nuclear technology,
and/or if other ways of reducing greenhouse emissions fall
short of what is seen as necessary, one possibility is there-
fore that there may be a nuclear renaissance. Nuclear power
is used to produce electricity, and already the technologies
for the electrication of the transport sector are being rapidly
improved. A nuclear renaissance would change many of
the premises and points made in this part of the chapter,
although some might still be valid. It might lead to some
of the same attening effects on the previously asymmetric
relationships between oil exporters and importers and decen-
tralization of power in the international state system. At the
same time, countries with large reserves of uranium (and
possibly thorium) and those countries and companies that
have the best nuclear technology could be strengthened.
5 A GLOBAL ENERGY TURNING POINT?
Both unconventional hydrocarbons and climate policy are
often thought of as leading to dramatic changes in the global
energy sector. The increase in shale gas production brought
US natural gas prices down dramatically at a time when they
had been expected to rise, and it is speculated that shale oil
may follow a similar trajectory—making the United States
rst independent of energy imports and then a net exporter
in its own right, changing power relations in the world
(Michaud, Buccino, and Chenelle, 2014; Maugeri, 2013: 25).
According to the vast majority of climate scientists, limiting
climate change to a temperature rise of 2◦C, or even 3◦C, will
require dramatic changes in the global energy sector, which
would affect different countries in different ways (IPCC,
2014). Major oil and gas importers such as Germany and
Japan might stand to benet, whereas some of the states
that have enjoyed the easiest sources of revenue might even
nd themselves bankrupt and vulnerable to encroachment.
However things work out, the global energy sector appears
to be on the verge of major upheaval.
Germany is one of the countries that have been most
proactive in transforming its energy sector. In German this
is referred to as Die Energiewende, “the energy transition.”
Central targets include the achievement of the following by
2050: greenhouse gas reductions of 80–95%; a 60% share
of renewable energy; and an increase in electricity efciency
by 50%. These changes in turn call for a major research and
development drive, comprehensive restructuring of energy
infrastructure, and a restructuring of the economy.
Although the term Energiewende was rst used in 1980
and reappeared intermittently thereafter, it did not become
ofcial government policy until in 2010 (Bundesregierung
Deutschland, 2010). Many actors anticipate that the rest
3538 Energy vs. Development
Oil Natural gas Coal Nuclear Hydro electricity Solar Wind Geothermal, biomass, and other
Figure 25.Primary energy sources for the world. Source: Created by author using data from BP, 2013.
of the world will also go through an Energiewende.As
Figure 25 shows, the ratio of various energy sources in global
supplies has been stable since the 1960s, with all energy
sources growing gradually. If there is a global Energiewende,
this graph will look different in the future.
Looking further back in history, we note that this is
not the rst time a comprehensive transformation of the
energy sector has taken place. The introduction of the steam
engine in the eighteenth century, of the internal combustion
engine in the nineteenth century and of nuclear power in the
twentieth century all led to major changes in the types of
Each of these tectonic shifts in the global energy landscape
has been associated with transformations of international
politics. The steam engine put the colonial race on a new
level. Winston Churchill’s decision to shift the British Navy
from coal to oil in 1911 was an important factor in the
outcome of World War I (Dahl, 2001: 55). And it necessitated
British control over oil supplies from (among other places)
Persia, where the British government in 1914 acquired a
controlling stake in the Anglo-Persian Oil Company, later to
become BP (Jack, 1968: 139). The rapid growth in private car
ownership in industrialized countries after World War II led
to a further increase in the importance of oil, triggering the
formation of OPEC in 1960 and playing an important role in
US military and political involvement in the Middle East.
After a half a century of continuity in the energy sector,
we may indeed be facing a global Energiewende, but it is far
from the rst such turning point in the world’s energy history.
That said, several factors may make the current possible
turning point different: the far greater size and wealth of
the world population than in the past; the larger number
of scientically advanced countries; and the presence of
technologies such as computers, lasers, and various forms
of automation. These enable the accelerated development of
other new technologies and their rapid mass production and
dispersion. Thus, the world should be technologically and
industrially capable of carrying out a major transformation
of its energy system more swiftly than in the past.
Unconventional oil and gas and climate policy are both
indeterminate, unpredictable processes with many complex
subcomponents. It is therefore impossible to scientically
predict their outcomes. What this chapter has instead
attempted to do is to provide an overview of some of the key
questions that these developments raise, and indicate some
Firstly, because the relationship between exporting and
importing countries is asymmetric, any changes will affect
exporting countries more than importing ones. Secondly, the
geopolitical changes wrought at the global level by continued
rapid growth in unconventional oil and gas production may
be limited by the fact that many of the biggest reserves
Future Petroleum Geopolitics: Consequences of Climate Policy and Unconventional Oil and Gas 3539
are located in countries that are already major oil and gas
exporters. However, in cases where there are tense relation-
ships between exporters and importers, as between Russia
and some of its customer countries, even smaller amounts
of unconventional oil and gas may change interstate power
relationships signicantly. Thirdly, it is striking how little
research has been published on the possible consequences
of a stricter climate policy for the petroleum sector—this
is a blank spot in the literature, so surprises could be in
store. Fourthly, the trajectory of the petroleum sector under a
stricter climate policy will depend greatly on the status of
natural gas and LNG under such a policy. The petroleum
sector may be dramatically downsized, or it may simply shift
emphasis from oil to gas. Even oil may not be so heavily
affected, if climate policy comes to focus more on coal,
deforestation, and so on.
The changes ensuing from the growth of unconventional
oil and gas production, however potentially dramatic, are a
continuation of past technologically driven changes in the
petroleum sector. By contrast, the changes brought on by
climate policy are of a qualitatively different nature. In some
ways, they belong to the same class of events as the founda-
tion of OPEC in that they involve the deliberative and coor-
dinated international political action carried out by multiple
states in cooperation and affecting world markets. However,
they are fundamentally different from OPEC because the
case of climate policy is not one of an oligopolistic group
of countries pitted against the consumers: what is at stake is
an (attempted) global or semiglobal regime.
Ironically, while climate advocates are trying to talk down
the stock value of oil and gas companies, the oil price is
historically high, and oil companies rank among the world’s
largest corporations. Although company bottom lines are not
always as impressive as their shareholders might have liked,
a large chunk of the prots is taken by the supply industry.
In sum, the petroleum sector is still protable. This means
that either all the talk about an impending effective global
climate regime and stranded assets will come to naught; or
that climate mitigation is going to be about reducing coal
consumption but not oil and gas; or that there are going to
be some abrupt changes in the valuation of companies in the
A central tenet of the oil industry’s anti-peak oil argumen-
tation has always been that both the technologies and the
cost of technologies may change in the future (and in fact do
change all the time), and that this in turn affects how much
can be found and extracted of a given geological resource.
Many of those who espouse anti-peak oil stances are also
skeptical about the prospects of an effective global climate
policy, believing that a shift from fossil-fuel dependency to
renewable energy is too costly to ever be realistic. But their
own arguments about technological change may apply to
renewable energy as well. Improvements in the efciency of
renewable energy technologies, the cost of mass producing
and deploying those technologies may or may be drammatic.
In addition, there is the possibility that entirely new renew-
able energy technologies will be invented.
A key aspect of the energy sector is that neither its
economics nor its politics are constants: they are subject to
changing technology. We can offer guesses about which tech-
nologies may be developed in the future, but it is impossible
to know with any certainty. Technologies that seem to be
near fruition may disappoint, while entirely new technolo-
gies may appear unexpectedly.
The coexisting expectations of expanding supply of
unconventional oil and gas and of a more effective global
climate regime are contradictory. Both unconventional
hydrocarbons and renewable energy are expensive, but if
one becomes cheaper than the other, it could cancel the
other out. This could happen, for example, if climate policy
makes renewables cheaper than hydrocarbons through taxes
or quota systems. Or it could be through new technologies,
whether for renewable energy or for unconventional oil and
gas. For example, it is possible to envisage how new and
more economical ways of extracting gas hydrates could
dramatically change access to natural gas. Sooner or later
there may be direct interaction between unconventional
hydrocarbons and climate policy. This adds another layer of
uncertainty to the world’s energy future.
Readers are welcome to use the graphs from this chapter in
original or updated form, as long as they give full credit and
reference to the chapter. To get hold of the original graphs in
Excel format, contact the author.
I thank the following colleagues for assistance with data
collection, literature review, creation of graphs, and feed-
back on the contents and language of this chapter: Nuraida
Abdykapar-kyzy, Tatyana Dzhiganshina, Daniel Fjaertoft,
Susan Hoivik, Lars Petter Lunden, Daniiar Moldokanov,
Alesia Prachakova, and Roman Vakulchuk. This paper is a
product of research funded by the Swedish Energy Agency
and carried out in cooperation by the Norwegian and Swedish
Institutes of International Affairs.
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3540 Energy vs. Development
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