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Inevitably, political as well as pure economic factors are at play in these calculations.

For example, Russia and Saudi Arabia’s reliance on high resource prices to support state expenditure means that ‘artificial’ budgetary concerns frequently replace extraction cost as the key market driver.

Powerful supply-side support for sustained high prices can therefore encourage more complex and costly extraction techniques.

Conversely, however, if a sustained global downturn in prices (perhaps driven by greatly expanded shale extraction) materialized, it would ultimately benefit the ‘traditional’ producing states with easily-realizable (i.e. cheap) reserves.

In such a scenario, non-conventional extraction becomes increasingly uneconomic; even with oil prices at current levels, extraction activities such as ultra-deep-water drilling (currently the subject of intense investment in off-shore Brazil, among other places) lies perilously close to break-even.

The challenge for CPR lies, therefore, in conservatively selecting those companies and countries that are best able to withstand the consequences of a sustained price realignment.

Chinese Constraints
The Chinese experience highlights some of the changing energy market dynamics.

China was a net energy exporter just two decades ago but, notwithstanding the current economic slowdown, its secular trend of significantly increased energy usage remains clear.

Here, too, huge shale deposits (potentially greater than the US) have been identified, though the extent of recoverability remains controversial.

Can the current Chinese model of highly centralized NOCs achieve what hundreds of relatively small US entities did through effective competition and the technological progression it encouraged?

Can the technical challenges — including relative depth of resources and scarcity of natural water supplies (crucial for fracking) — be overcome?

Such issues are significant, but unlikely to be insurmountable: the Chinese NOCs have invested over $17 billion since 2010 in oil and gas deals in the US and Canada.

Already, therefore, the technology transfer required for successful exploitation is well underway, as in many other areas of the Chinese economy.

Ultimately, it seems probable that the benefits for Beijing of increased resource self-sufficiency will prove too great not to be vigorously pursued.

European Experience
The outlook for European shale production is currently less positive, despite the existence of significant reserves.

Regulatory issues and public opinion present major hurdles, including legal frameworks for resource ownership differing from the landowner-favouring US model.

While Poland has pressed ahead with the aim of greater self-sufficiency, France currently enforces a blanket ban on shale resource extraction.

The shortage of drilling equipment in Europe is another constraint; the US currently has 60 per cent of all land drilling rigs, and drilling intensity there remains a multiple of the rest of the world combined.

As things stand, little meaningful impact on the current European energy mix is imminent, despite extensive media coverage.

Economic Stimulus Irrespective of production geography, in the longer-term, increased and diversified oil and gas production has the potential to act as a significant global economic stimulus.

The shift in relative energy costs has already spawned additional activity in North America, notably in the energy-intensive chemical and steel industries.

Interestingly, some foresee the potential for a more linear growth path to emerge, with economies less constrained by variable — and thus unpredictable — energy inputs from concentrated and/or politically unreliable sources.

In the last five years, global supply was bolstered to a significant degree by increased US production, and prices — albeit still high by historical standards — did not soar despite significant production decreases in Egypt, Iran, Sudan and Libya (among others).

To an extent, therefore, tight oil and gas has already played its part in ensuring that the fragile global economic recovery was not retarded by unrelated political events in major resource- exporting countries.

Pricing control
Unconventional extraction is typically much smaller in scale (and capital outlay) with a shorter average project life than conventional extraction, and can be suspended more rapidly in the event of changing market circumstances.

Shale, therefore, also has the potential to act as a pressure valve, regulating global supply to meet changing demand in much the same way as OPEC production quotas have done for decades.

Instead of massive, and potentially unprofitable, investment throughout the economic cycle — with supply eventually appearing irrespective of the eventual market conditions — a more responsive market may emerge, with the US (and others) as ‘swing’ producers, lessening the dramatic price fluctuations of earlier eras.

The concept of US energy self-sufficiency has also provoked much comment on the US’s interests in the Middle East, and the persistence of the current support for maintaining extensive military infrastructure in the region. In reality, it is easy to overstate this point, and a significant withdrawal from the region seems unlikely.

Even before the development of shale extraction, the Middle East supplied only 10 per cent of US oil needs, and energy is clearly only one of a range of preoccupations for Washington in the area.

Nonetheless, more widely dispersed energy resources, and increased self- sufficiency for countries long used to reliance on imports, will undoubtedly shift the relative balance of power.

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