As the shale oil and gas revolution is revitalizing American industry and coming to Europe, one country stands to lose the most — Russia.
Shale is controversial on both sides of the Altantic. Opponents believe that hydraulic fracturing or “fracking” can cause earthquakes and contaminate underground water supplies. Bulgaria and France have therefore banned the practice. The Czech Republic may soon follow. Russia, a major oil and gas exporter, is keenly aware that shale poses a threat to the leverage it currently wields over Europe.
In parts of the United States where governments are less fearful of the drilling technique, fracking is redefining the energy industry.
Since the financial crisis of 2008, while the rest of the country has never seen unemployment below 8 percent, fracking has created up to six hundred thousand new jobs. Particularly in the northwestern Appalachian mountain region or “Rust Belt” of America as well as Western states like Colorado, Wyoming and Utah, huge shale formations are a potential boon to local economies. Estimates are that in the former three states alone, up to three trillion barrels of oil are recoverable from shale which is more than the entire world’s proven reserves. North Dakota, thanks to fracking in the Bakken formation, has the lowest unemployment rate in the country.
The price of gas in the United States has plummeted as a result. If the technology is adopted on a large scale in Europe, the price will similarly fall there — a prospect that the Russians regard with apprehension.
Countries in the European Union currently import 36 percent of their gas from Russia and 31 percent of their oil. Moscow wields considerable influence over transit countries like Ukraine which are even more dependent on Russian imports. (Ukraine imports some 60 percent of its natural gas and 90 percent of its oil.) Twice in recent years has it turned off supplies amid price disputes. The perceived unreliability of Eastern European states that are positioned between producer (Russia) and consumers (in Western Europe) prompted Russia’s Gazprom and Germany to build a pipeline across the Baltic Sea — Nord Stream. State-owned Transneft is in talks with the Czech Republic and Germany for construction of a new pipeline overland that will bypass Ukraine. The European Commission is desperately trying to get a pipeline build across Turkey and the Balkans to import Caspian gas.
As long as the Europeans continue to buy Russian oil and gas, competing pipelines are a nuisance for the Russians rather than an existential threat. Shale is. Oil and gas revenues, including mining taxes and export customs duties, account for nearly half of the Russian state’s income. Russia needs oil to trade at an average of $117 per barrel this year to balance its budget. Price reductions, as a result of cheaper, domestic production in Europe, could be devastating to Putin’s empire.
So what do you do? Wikistrat anticipated this scenario in a strategic simulation that was conducted in February of this year, under the title “The North American Energy Export Boom”. During that simulation, dozens of analysts from all over the world were asked how the fracking revolution may unfold and how key national players in the energy sector should respond to this drastic development. Among the more Machiavellian policy options that were explore for Russia was “Playing Dirty”. It proposed that Moscow coopt environmentalists and other opponents of fracking in Europe and the United States, fund them and scare regulators, investors and the public at large with “evidence” that the drilling technique is indeed linked to earthquakes and pollution. Russia could even go as far as to purposefully contaminate water supplies through ecoterrorist proxies…
It turns out, Putin has already become “a great champion of other countries’ environments,” as Aviezer Tucker, an assistant director of the Energy Institute at the University of Texas, puts it in The Washington Times. Gazprom and the Russian state, through public relations firm and environmentalist groups, are propping up an anti-fracking alliance.
As in the national fronts of post-World War II Europe that paved the way for communist takeovers, the groups that are loyal to Moscow control the coalitions. Such organizations do not, for example, criticize nuclear power as long as it is provided by Russia or condemn the effect of drilling in Siberia on the Russian environment.
They spread myths and misconceptions about hydraulic fracturing, “courtesy of Russian-financed public relations firms,” to sway public opinion. The irony, of course, is that by doing so, these environmentalist groups perpetuate Europe’s dependence on coal — not exactly a “green” energy source — and Russian imports. Putin, by all indications, couldn’t care less about the environment.
The Russian leader does care about protecting his country’s status as a pivotal player in the global energy game. The big prize will be Germany which depends on Russian imports for some 40 percent of its gas needs. It is clearly susceptible to environmentalist pressure. After the Fukushima nuclear power plant disaster in Japan last year, German chancellor Angela Merkel, who previously supported nuclear energy, ordered the shutdown of all of Germany’s nuclear reactors. It is also invested in Nord Stream.
According to ExxonMobil, Germany has 827 billion cubic meters of gas resources of which 80 percent is in “unconventional” deposits. That would make it one of the largest gas nations in Europe, after Norway, the Netherlands and Ukraine. It’s the sort of figure that must keep Putin awake at night.
Remember, when we see the emergence of a Grünen Armee Fraktion, who stands to benefit the most from stopping Europe’s shale revolution.
This article was simultaneously published at Wikistrat’s blog.