Development of unconventional gas reserves brings foreign direct investment, creates new jobs and helps to diversify away from other imported fuels - or, as is the case in the US, helps the nation gain energy independence. In addition, natural gas is of growing importance to the European economies that will cause a rethink about energy security. Already, there is a growing realisation among European policy makers that natural gas in world energy markets will have wide-ranging and major geopolitical consequences. In addition, among the many policy options available, natural gas can be seen as the best transition fuel to a sustainable and renewable energy future.

Therefore, gas is deemed to become one of the most important fuels of the decade. The extent of the natural gas resource base means that supplies are plentiful, the infrastructure transporting it to its consumers is in place, and it burns twice as clean as other fossil fuels – making it the cleanest of the fossil fuels and publicly accepted source of power generation. Combine this with the ever-increasing role of renewables for power generation and natural gas has the potential to become the major balancing energy source.

But, the impact of the shale gas buzz is even greater. It has become the new elephant in the room, with global geopolitical implications that have caused a chain reaction. European gas prices are being renegotiated and revised. It has also caused an average of 15 per cent of Gazprom's supplies to be delinked from oil-indexation. And yet, the implications are greater still: relatively cheap and abundant gas, along with the carbon advantage of gas, makes nuclear and coal relatively more expensive than currently assumed. Switching from coal to gas means emissions can be reduced quickly at a very low cost. Indeed, making gas a major transition fuel through to 2030 - will help renewable energy efforts to reduce emissions in order to mitigate the impact of climate change.

This chain of events also has the potential to remove Gazprom's European gas supply near-monopoly. In the fourth quarter of 2010, Russia's gas exports to Europe declined by 17 per cent owing to a market oversupply due to re-directed liquified natural gas cargoes and unseasonably warm weather. Unconventional gas has helped to shift the balance from a seller-dominated market to one dominated by buyers. Unconventional gas is nowadays the new policy option for European countries, giving buyers more leverage to renegotiate the high Russian oil-indexed gas price demands that are included in long-term contracts.

Even without being produced in Europe, it puts a certain price cap on high Russian gas prices as it can become a potential source of diversification – particularly, if Russian gas prices are higher than the brake-even point for European unconventional gas. All this has the potential to make unconventional gas development economically feasible and, politically speaking, more appealing. Unconventional gas, and shale gas in particular, has become a negotiating tool in a changing gas market that is enhancing Europe's energy supply security by diversifying energy sources and enabling the prioritisation of a domestically located resource.

Russia's options to respond are limited. Confronted with decreasing natural gas prices, Moscow's policies have become unintentionally the major enabler for unconventional gas developments in Europe. But, even if only a fraction of those unconventional gas resources become available for the European gas market, they still might be less expensive than the very high prices of the new Siberian gas fields of the Yamal Peninsula or Russia's Arctic offshore gas resources - like Shtokman - and offer another diversification source. Against this background, and the fear in Moscow of losing further markets shares in its most important export market for conventional gas and the geopolitical game - with Gazprom being the spear-point of foreign policy - it is hardly surprising that representatives of the Russian government try to downplay the importance of a shale gas. And they try to portray very negative implications of unconventional gas production in Europe - for its environment and the European Union's climate mitigation efforts.

Gazprom, therefore, needs to diversify as its export model suffers. It is expected that Gazprom will operate in three distinguished markets: the traditional European market; a de-regulated and compromised domestic market; and a new Asian market. But indications for a new eastern strategy for gas supplies to China –- as a new big growing market – might not solve the problem Gazprom could face.

Although, China is already moving towards a more gas reliable economy associated with clean and relatively cheap fuel, Petrochina estimates that the country may have 45,000 billion cubic metres of unconventional gas. This would be more than Russia's proven conventional reserves. China seems also to be more likely to dictate low prices connected to coal or hub pricing, than to pay such a high premium for gas as the Europeans do.

Consequently, with the high cost of building new infrastructure to China and developing expensive new upstream projects in east Siberia and the Russian Far East - diversification of gas deliveries to China will not allow Gazprom to reduce its exposure to Europe. When examining the Chinese companies´ international energy investments, one comes to the conclusion that these have been driven less by money-making or value-aggregation objectives and more by pure principles of energy security and diversification. In this way, the US-China Shale Gas Resource Initiative – an initiative dedicated to enabling the America as "a leader in shale gas technology and developing shale gas resources" to enter the Chinese energy market – is another hurdle preventing Russian gas from going east. In sum, China is more likely to pursue, in the future, its energy security agenda and help its local economy by producing domestic unconventional gas rather than enter into new dependencies with expensive Russian natural gas.

Another side effect of the Sino-American Shale Gas Resource Initiative is that it reduces the Chinese dependency on the Middle East and disincentives China from breaking the sanctions on Iran in order to satisfying its energy thirst. The less China is being made to feel vulnerable by its need to increase oil and gas imports from the Middle East and Persian Gulf via the vulnerable sea lanes of communication and the choke point of the Malacca-Strait - being blocked by the US and Indian naval forces - the more it may support international sanctions and the less Beijing will be concerned about the American control of the SLOCs and choke points of the Indian Ocean and South East Asia.

Unconventional gas not only gives consumers new leverage in balancing the supply-demand equation, but also helps to maintain energy security either as a threat – as in Europe - or as a domestic fuel, as in China. Unconventional gas, then, helps to break quasi monopolies on pricing and helps to integrate the global gas markets further by adding more gas into the market or through re-directing LNG to other markets, as seen in the US.

Meanwhile, it is not only the EU that may benefit from the geopolitical implications of unconventional gas resources. Although, there are hurdles for unconventional gas developments in Europe - such as public acceptance, environmental standards, economics and price issues - unconventional gas serves as a game changer not only continentally, but globally. This poses a major threat to Gazprom's traditional business model. But it is a threat that can be mediated by the Kremlin and Gazprom by finding new mutual agreements and business models in which suppliers, as well as consumers, benefit, without one or another dominating.

Maximilian Kuhn and Frank Umbach are the authors of a European Centre for Energy and Resources Security paper entitled Strategic perspectives of unconventional gas: a game changer with implication for the EU's energy security.