More big changes are afoot in the shifting sands of the global energy industry. Crude oil derived from shale formations (‘Shale Oil’) suddenly has the potential to create an abundance of hydrocarbon energy for transportation, where previously it was in short and ever-dwindling supply. For now this is a phenomenon unique to the USA, but has the potential to spread around the world.

This ‘old energy’ counter-revolution looks as though it will be hugely significant, and yet it has only really started to make waves in the last few months. This is in part due to an oil and gas industry that is rightly wary of over-promising before it is sure it can deliver. But confidence is now growing. Some of the recent analytical output from that industry has a triumphal tone seemingly designed to get up the noses of sustainable investment analysts. But as irritating as this is, we have to admit, they have a point.

The basic facts provided by the US EIA are: having peaked at 9.6m barrels per day (b/d) in 1970, US crude oil production then went into steady decline for thirty-five years, as conventional wells ran dry. Production reached its nadir in 2008 at 5.0m b/d, but has since risen to 5.7m b/d at the end of 2011. According to the EIA’s own projections, it is now on track to reach 6.3m b/d in 2015, and 6.7m b/d in 2020.

This may sound modest, but in the context of rapidly dropping US domestic demand for crude, and with natural gas liquids (which end up in many of the same applications as crude) growing at a similar rate, this is a really meaningful change. Furthermore, the EIA is regarded by many as conservative in its forecasts: we have seen one investment bank projecting twice this level of production growth. The key new source driving this increase will be shale oil, as all of that growth comes from the lower 48 states (rather than Alaska).

In the short term, these developments probably won’t bring down global oil prices. Supply constraints arising from sanctions imposed on Iran should see to that. But in the medium term, if these predictions are correct, the price of crude in the USA should fall significantly. Export restrictions on US crude will stop the price of international crude from falling so fast, but in due course it could follow suit if fracking takes off in other countries.

So the challenge for cleaner energy sources to match the cost of hydrocarbons appears to have just become a lot tougher. But the truth is that this new black gold rush is creating more questions than answers.

The full environmental impact is still unknown. Shale oil is produced using hydraulic fracturing (or ‘fracking’) techniques, which involve pumping water and chemicals into shale formations to force the oil and gas contained in them out and to the surface. Fracking is very water-intensive, and many of the key shale oil areas in the USA are in arid regions. The need to treat and re-use large quantities of water in areas of high stress can seriously impact the economics of a project. There are also other environmental risks from fracking that are still not fully understood, such as seismic activity and threats to drinking water.

Moreover, this is only a new development in the oil market. Natural gas is further through its shale revolution, and US natural gas prices are already settled at long term lows. Most cleaner energy sources compete with gas in electricity generation, rather than with oil for transportation. And even if this new bonanza looks as though it will entrench oil’s dominance as a transportation fuel, this is not certain. There are at least two lower-carbon technologies being meaningfully explored (electric vehicles, and natural gas vehicles) which have real potential to disrupt that.

Perhaps most crucially, we are not talking here about oil that is actually ‘cheap’. The figure commonly quoted is $70 per barrel for the current crop of US shale oil plays. As always, the industry is promising that this price will drop as the supply chain improves. But this is never a given, and it is likely that second- and third- generation wells won’t be as good as the first, so there’s a good chance those prices will stay where they are for a while.

There is of course an Elephant in this room: carbon dioxide. When trumpeting this wonderful new development, it is striking how firmly in denial many voices (including outside the oil industry) are on the topic of carbon emissions: they are simply not mentioned at all. In this US election year, carbon is completely off the agenda; should there be a Republican victory in November it will probably stay that way. Faced with a potential abundance of cheap hydrocarbon energy, this wholesale retreat from reason looks ever more firmly entrenched. Plus ca change.