Opinion - Shale has revolutionized oil and gas supply and the global political balance in less than five years, transforming the narrative from one about "peak energy" into a story about managing abundance.

The revolution stems from the application of two mature technologies (horizontal drilling and hydraulic fracturing) in a new context to unlock oil and gas from well-known rock formations that were previously impossible to tap because of their low permeability. Horizontal drilling and fracking have dramatically expanded the range of potential rock formations that can be targeted for oil and gas production. Shale resources are vast and much more widely distributed than conventional oil and gas fields.

If the industry's full potential is realized, the center of gravity in the global oil and gas markets will shift away from dependence on the Middle East, North Africa and Russia (for gas). But while the potential is global, the only significant quantities of shale oil and gas that have been produced so far have been in the U.S. Elsewhere the industry's potential remains theoretical.

Shale is a profoundly disruptive technology that touches all aspects of the oil and gas markets from production, costs, refining and transport routes to the balance of power. It is disruptive because it has emerged in the middle of the cost curve and threatens to displace higher-cost oil and gas production. It is also complicating policy on climate change by threatening to provide a practically unlimited source of fossil energy at relatively low prices.

Shale is turning the U.S. from the world's largest energy importer into a significant exporter, at least in some areas, conferring a competitive advantage on U.S. manufacturers in energy-intensive industries such as iron, steel and chemicals.

Shale is already altering the political balance, and the revolution is still in its infancy. The central question now is how far the industry can be scaled up and spread beyond the shores of North America. Most of the obstacles are above ground in the form of politics, regulation and environmental acceptability, rather than geological or technical. 

Market analyst John Kemp gave a presentation exploring the implications for Reuters' clients in Geneva on Tuesday. A copy is available here: http://link.reuters.com/cyd29t