No natural gas panacea: forget about a long-term glut and cheap prices.

• Author: Tsafos, Nikos

In March 1999, The Economist wrote that, "The price of oil has fallen by half in the past two years, to just over $10 a barrel. It may fall further--and the effects will not be as good as you might hope." Soon thereafter, in January 2000, an article in Foreign Affairs titled "The Shocks of a World of Cheap Oil" argued that "the world should worry less about a scarcity of oil than about a glut." Four years later, these forecasts were proven wildly wrong.

Fast forward to March 2010. The Economist wrote about an "unconventional glut" in natural gas: "newly economic, widely distributed sources are shifting the balance of power in the world's gas markets." With clocklike precision, in January 2011, a Foreign Affairs article cheered the "Good News about Natural Gas" that would lower prices and "reduce the political and market power of today's major oil- and gas-producing countries."

A long-term glut in natural gas was improbable to begin with, and the dual shock of unrest in the Middle East and a nuclear disaster in Japan make it even less likely now. A few years hence, we will look back at this time the way we look back at oil in the late 1990s. Because gas markets are regional, scarcity will affect places differently. Russia, Qatar, Australia, and Central Asia will see their influence grow. North America will still do well. Europe and Asia will not.

SUPPLY SHOCK: MIDDLE EAST

The revolutionary wave in the Middle East has delivered a shock more psychological than real. The region accounts for just 20 percent of global gas output versus 35 percent of oil, so losing Middle Eastern gas is not as painful as losing its oil; and physical disruptions so far are limited to Libya, whose lost output only partly hurts Italy. But unrest has created a risk premium as markets fear the loss of Yemeni or Algerian gas, the latter supplying a tenth of Europe's needs--either of these would trigger a price rally.

The broader question is where the Middle East goes next. A political model has clearly failed: autocratic governments could not offer real employment, and when half the citizenry is under twenty-five years old, that failure has systemic implications. Gas was a tool in addressing that deficiency by feeding industrialization programs to create jobs. Qatar and Egypt placed moratoriums on new export projects to send more gas to local markets. Saudi Arabia has long tried to use gas to fuel power stations and industry. In Oman, exports have suffered as gas is sent to the local market.

From afar, the Middle East has always been viewed as the repository of the world's fossil fuels. But a combination of booming domestic demand and a focus on developing oil over gas has resulted in gas-rich...