Redrawing the Energy Map

The message is clear—unconventional oil is redrawing the globe's energy map. Whereas before the upstream industry was exploring for oil and gas in exotic locales like the Persian Gulf and the desert sands of North Africa, most recently  Western energy giants are hunting for supplies in rich, developed countries—a shift that could have profound implications for the industry, global politics and consumers.

The U.S. is at the forefront of the unconventionals revolution. By 2020, shale sources will make up about a third of total U.S. oil and gas production, according to PFC Energy, a Washington-based consultancy. By that time, the U.S. will be the top global oil and gas producer, surpassing Russia and Saudi Arabia, PFC predicts.

That this change could have far-reaching ramifications for the politics of oil and gas is a given. Power is expected to shift away from the Organization of Petroleum Exporting Countries (OPEC) toward the Western hemisphere. With more crude being produced in North America, there's less likelihood of Middle Eastern politics causing supply shocks that drive up gasoline prices. Consumers could also benefit from lower electricity prices, as power plants switch from coal to inexpensive and plentiful natural gas.

As you might imagine, this change has a ripple effect down to the oil companies themselves, as they reallocate their vast resources to new areas and new kinds of fuel. Working in the developed world—with its more predictable taxes and investor-friendly policies—removes some of the risks about the big oil companies that worry investors.

"A company like Exxon Mobil can eliminate the technological risk" of developing unconventionals, says Amy Myers Jaffe, senior energy adviser at Rice University's Baker Institute. "But it can't eliminate the risk of a Vladimir Putin or a Hugo Chavez."

This new way of looking at risk is at the heart of the transformation. International oil companies traditionally face a choice: They can either invest in oil that is easy to produce but located in politically volatile countries. Or they can seek opportunities in stable countries where the oil is hard to extract, requiring complex and expensive production techniques.

Now, it seems the choice is much simpler.