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Energy Security and Unconventional Gas

On June 4 2012, top European Union officials met with Vladimir Putin, in a tsarist palace outside of St. Petersburg, as part of a biannual EU-Russia summit.

June 20, 2012 - Krzysztof Walski - Articles and Commentary

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Along with Herman Van Rompuy, Catherine Ashton, and Manuel Barroso tellingly was Gerhard Oettinger, the EU Commissioner of Energy and Alexander Novak, the Russian Energy Minister.

In addition to discussing issues of the financial crisis in the Eurozone, disagreements about how to deal with Syria and the removal of visas for Russians, the energy sphere was a hot topic. For one, the EU’s Third Energy Package is seen by Russia as unfavourable to its interests. The EU has also been working towards decreasing its vulnerability to dependence on one supplier, especially after the supply disruption in the winters of 2006 and 2009. It has been increasingly looking at alternative sources of energy such as liquid natural gas (LNG), building more interconnectors and developing common energy plans. These steps would further advance an internal energy market and the hope is Europe’s energy security as well. However, the relationship between the EU and Russia regarding energy may be influenced by an outside player and technological advancement, namely the United States and the shale gas revolution.

A technological drilling technique known as hydraulic fracturing or “fracking” combined with horizontal drilling has opened previously inaccessible or economically unviable gas deposits to commercial exploitation. Unconventional gas includes shale gas, tight gas and coal bed methane. Ukraine and Hungary for example are thought to have significant supplies of tight gas. Poland and Ukraine are currently exploring for shale gas. If exploration is successful, deemed economically viable, and not inhibited by excessive regulations or moratoriums as elsewhere in Europe (i.e. Bulgaria) then more significant diversification can develop in the course of the next several years.

Extraction currently involves large amounts of water in the form of steam along with sand and other materials being put under high pressure deep into the ground, in the vicinity of thousands of metres. This breaks up and creates fissures in the shale formations allowing the previously enclosed gas to come up to the surface through a previously prepared concrete casing which also serves as a safety barrier to the surrounding environment. If done properly and responsibly the International Energy Agency (IEA) estimates that gas extraction could lead to a “Golden Age of Gas”, possibly being more than three times the current levels of extraction by the year 2035 –reaching 1.6 trillion cubic meters. For now there are still many uncertainties though as Poland and other countries with shale gas have yet to produce a clear legal, taxation, and licensing environment for future production. Further, with Exxon Mobil’s announcement to drop exploration of shale gas in Poland leads to even more questions as to whether there truly will be a golden age and or just a pipe dream.

Shale gas is also not without opponents. Russia’s Gazprom for example would face even more competition in its most lucrative market. Countries such as Poland and Ukraine pay one of the highest prices in Europe for their imported gas from Russia. It would also possibly further diminish the chances of the Russian supported South Stream pipeline would be used for political influence or blackmail of Ukraine. If built as planned, it would be able to bypass Ukraine entirely. Russia sees the South Stream as more realistic than the EU’s troubled plans for the Nabucco pipeline (which would transport natural gas from Turkey to the EU – editor’s note) and is determined to move forward with South Stream.

The long-term effects of unconventional gas, particularly that of shale gas, are yet to be fully felt but they present other enormous geopolitical ramifications for Central and Eastern European countries and the world as well. For example, as one of the world’s largest energy importers previously, the US now has the possibility of reducing dependence on imported oil as well exporting natural gas to international markets as LNG. Other emerging LNG players such as Australia will match Qatar in exports of the commodity by 2020. New LNG import facilities are already being built in Central and Eastern European countries to make the import of the increasing diversified and liquid global supply possible. Poland’s LNG port under construction in north-western Poland in Świnoujscie is to be finished in 2014 while Lithuania is planning its own modern floating facility with the cooperation of Norway’s Statoil in its Port of Klaipéda. Another infrastructure project is the North-South corridor, planned to interconnect Central Europe’s energy infrastructure, from Poland to Croatia.

Even if shale gas takes time to be developed in Europe (France and Bulgaria currently ban fracking, whereas Poland and the UK are conducting exploration) it would not only reduce prices but offer more domestic supplies as the remaining domestic conventional ones are steadily being depleted.

These developments give hope to European policymakers concerned with democracy or energy being used as a political tool and a cause for concern for authoritarian governments who are dependent in large part on oil and gas exports. With Europe as one of the largest markets and consumers of energy and with Russia being a large neighbouring supplier with existing infrastructure connecting the two, both will sooner or later feel the effects of the shale gas revolution, whether directly through domestic production or indirectly through global LNG supply. Europe could use a shot in the arm of cheaper and more reliable energy supplies whereas Russia could benefit from incentivized diversification of its economy.

Krzysztof Walski is a graduate student of Politics and International Affairs at the University of Kent and Jagiellonian University in Krakow Poland. He has a BA in International Relations from the University of Pennsylvania.

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