Video Transcript:

In looking at energy security, it really comes down to transport. And to understand transport, we must understand the nature of oil.

First, oil is essential. It has thousands of industrial uses and it's the most significant element of the modern transportation system. In a world without petroleum, the average standard of living would drop by three-quarters as everything from agriculture to plastic manufacturing simply stopped. Even sectors that don't directly use much oil, like power generation, are still dependent upon affiliate industries that transport and keep them functioning.



Second, while it might not seem like it right now, oil is relatively cheap. A gallon of oil is cheaper than a gallon of orange juice in the developed world. What that means for energy security is that it must be transported in bulk.



With that in mind, let's take a look at a map of the world at night. This clearly identifies the world's primary technological-industrial hubs, but when you overlay where the world's major oil producing regions happen to be, you'll notice that not very many of them are near where these lights are. Many of the features of the modern international system come from dealing with the fact that energy producers are far removed from energy consumers. It's all about making sure that the oil can be where it needs to be, when it needs to be.



That focuses attention particularly closely on the Strait of Hormuz. A quarter of global oil output and two-fifths of waterborne oil shipping transit the strait, and unlike places like the Strait of Malacca, there are few realistic bypass options. It's a recipe for external intrusion and sustained conflict.



Two developments are currently under way. First, the United Arab Emirates and Saudi Arabia are expanding pipeline options that would reduce oil flow that transits the strait, reducing strategic vulnerability of the oil industry. Second (and more significantly) is the rise of a new mix of techniques that allow for the development of shale deposits.



As shale technology continues to evolve, it may be years before we truly understand the full impact, but already the United States has reversed the decline in its oil production. The Bakken and Eagle Ford shales are collectively producing over a million barrels per day, and that's before associated natural gas has been taken into account.



A second look at the world at night map highlights how this may change things. Shale basins are much closer to the lights. Shorter transport distances means the criticality of transport recedes. Places like the Persian Gulf, while still important, are less critical. A world of shale oil may or may not result in cheaper oil, but it will certainly result in a world in which the major oil consumers will have a much firmer grip on the system.