US ‘shale revolution’ a positive step

By Chen Yung-feng 陳永峰  / 

Tue, Feb 26, 2013 - Page 8

Progress in the exploitation of shale gas in the US is bringing about a new revolution in the history of civilization. However, given the scarcity of reports about shale gas in the nation’s media, most readers probably do not know very much about this “shale revolution.”

Shale gas is essentially the same substance as the natural gas already used. The difference is that shale gas is found in the bedrock strata that lie between 2,000m and 4,000m below the surface of the Earth.

In the past, shale gas was either too difficult to extract or the relative benefits of extraction were not worthwhile. However, the recent surge in prices of petroleum and other energy resources have made the development of alternatives, such as undersea resources and shale gas, more worthwhile in comparison.

The struggle for resources is what lies behind the contests over territory that have been occurring so often recently. It is as if world history had been turned back to the eve of World War I. The difference is that in the past, Europe, the US and Japan played the leading roles, whereas nowadays the power game is more plural, fluid and irregular. International law and classic diplomacy have receded, and there is hardly any potential for resorting to military force.

Since 2009, the successful commercial extraction of shale gas has turned the US into the world’s biggest producer of natural gas. Shale gas now accounts for about a quarter of US natural gas output and that proportion will doubtless continue to grow.

At the same time, shale oil, which is to be found in the same rock strata as shale gas, is also being extracted. It is generally estimated that the US will become the world’s biggest petroleum exporter in about 2017 and may even go from being an oil-importing country to an oil-exporting country.

If this occurs, the US will see a big improvement in its trade balance and may be able to eradicate its existing double deficit in trade and finance. The US’ ailing manufacturing sector may also revive, thanks to the advantage of cheap energy. The US dollar could regain its former strength, while the Japanese yen may suffer a sustained decline. When these things happen, the US will not just be the world’s market, but may reclaim its status as the world’s factory.

Apple Inc’s recent announcement that it is going to restart computer manufacturing on a US production line may not seem significant, but when considering this wider background, it has profound implications.

South Korea, a favorite topic of conversation in Taiwan, has made the decision to import liquefied natural gas (LNG) derived from US shale gas in the 20 years between 2017 and 2036. If this happens, South Korea’s manufacturing costs will be cut significantly. Some Korean energy experts estimate the cost of LNG will fall to between US$7 and US$8 per million British thermal units, which would be less than half the current price of U$17 on East Asian markets, including in Taiwan, Japan and South Korea.

South Korea has been quicker than Taiwan and Japan to wake up to the significance of the US shale revolution, which has given it a head start in the new wave of energy competition in East Asia. This is thought to be the result of South Korea’s Ministry of Knowledge Economy (equivalent to Taiwan’s Ministry of Economic Affairs and Japan’s Ministry of Economy, Trade and Industry) working with Korean Gas Corp. It is another success for South Korea’s state-led pattern of development. An important background factor is the US-Korea Free Trade Agreement, along with the Americanization and globalization of the South Korean economy.

When considering domestic problems in Taiwan, I feel less inclined to make comparisons with South Korea because conditions prevailing in the two countries are different and their existence on the world’s historical timeline does not match up. If people compare the two nations, it often blurs the focus and perception of the essential factors is lost.

When South Korea’s energy policies are compared with Taiwan’s, where the government and state-owned companies such as CPC Corp, Taiwan and Taiwan Power Co, which have great influence over the basic conditions for manufacturing, are often tied up in conflicts over minor details, one cannot help but wring one’s hands in consternation.

Let us hope the government can keep up with the times and succeed where others have failed. Taiwanese often moan about how little attention they receive from the international community, but how often do they pay careful attention to the world around them? A nation that fails to see the world clearly will always lag behind world trends. Such a nation will never go beyond copying what others have done before it. There are many examples: education reform, energy innovation, currency and reserves, open markets and free trade.

Taiwan now has a new premier, Jiang Yi-huah (江宜樺), at the head of a new Cabinet. Let us hope the new Cabinet ministers will think about things in a new way, and that the government will get a better understanding of the nation’s conditions and a clearer view of the world around us.

Chen Yung-feng is executive director of Tunghai University’s Center for Japan Area Studies.

Translated by Julian Clegg