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Coffee House

How America’s shale gas revolution makes Putin ever weaker

5 March 2014

10:02 AM

5 March 2014

10:02 AM

Once or twice every century something good happens to Russia, but then another long night of suffering closes over the great Asian wastes. In 1917, the Russians managed to overthrow their hated Czar and proclaim a democracy. It only lasted a few months before being swept away by a much worse autocracy, which stayed in power until 1991.

The sudden prospect of post-Soviet freedom was accompanied by the promise of long-delayed prosperity, as the liberated nation began to develop its vast resources, one of which was natural gas. For a few years, Putin’s Russia dominated the international natural gas market and earned high prices. Recent developments elsewhere, however, are now shrinking that boom almost as quickly as Putin is stamping out the new freedom. Now, as Putin rolls his armies into Ukraine and Crimea, his finds that his greatest diplomatic weapon, Russia’s abundance of natural resources, is a less and less potent factor on the international stage.

Russia’s monopolistic gas company, Gazprom, has a near-stranglehold on supplies to Eastern Europe, whose governments have to step carefully in response to Russian actions. It is hoping to increase its grip on Western European markets as British and Norwegian supplies dwindle, and it declared as much at a London conference last week. But Gazprom depends on an ageing, Soviet-era infrastructure, runs inefficiently, depends on political cronyism, and hasn’t kept up with new recovery methods. Its monopoly practices have made it unpopular and provoked threats of anti-monopoly litigation from the EU. Even before the Russian invasion of Ukraine it faced energetic new challengers.

These challengers are American. Improvements in fracking technology, and new techniques of directional drilling since the millennium, have turned the United States into the world’s largest natural gas producer, brought prices down, and prompted many coal- and oil-fired industries to switch to gas. American port terminals originally designed to import liquefied natural gas (LNG) are now being modified to facilitate exports, and a growing surplus may start to find its way to Europe, reducing Europe’s dependence on Russia.

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Fracking can be dangerous and is the target of recurrent environmental protests. It’s the subject of a Matt Damon feature film, Promised Land, and a glum documentary, Gasland, both of which condemn it as a reckless contributor to pollution, global warming, and carcinogenesis. Forcing very high-pressure fluids into geological faults to release the gas, say protesters, will lead to seismic disturbances and water-table contamination. The producers agree that it needs to be done carefully but in their view, the dangers have been overstated. Michael Levi, fracking’s first historian and author of The Power Surge points out that the gas burns so much cleaner than coal or oil that a future alliance ahead between the gas men and the environmentalists is more logical than their current antagonism.

Fracking is economically alluring and is leading to energy independence for the US. American natural gas production had peaked in the early 1970s then entered a steady decline until fracking gave it a new lease of life after 2006. Since new supplies came on line, the price consumers pay for gas has fallen steadily, from about $10 per thousand cubic feet in 2007 to under $3 today. Short-term price fluctuations can’t change the attractive long-term prospect of abundant, clean, low-priced energy, and a nation less dependent on supplies from the politically volatile Middle East. The price has fallen so far it threatens the prospects of renewable energy sources (wind and solar), making them—as so often in the past–uneconomical.

Immense oil and gas reserves have been unlocked in Pennsylvania, Ohio, and Texas. More strikingly, the state of North Dakota in the heart of the Great Plains, America’s own Siberia, has recently been transformed. Exploration and development of the Bakken Shale that underlies it have swelled the state’s population, increased employment, and brought wealth to what had been, until recently, some of the poorest and most depopulated places in the nation. North Dakota, where low winter temperatures reach sixty and seventy degrees below freezing, faces a serious housing shortage. It also has an unemployment rate approaching zero.

The industry developed so rapidly there that in the first few years, while the more valuable oil was collected, the gas was simply burned off, or ‘flared,’ at wellheads, because there were too few pipelines, and no facilities to liquefy and store it. This profligacy is now being rectified, though as much as $1 million worth of natural gas may still be going up in smoke every day. Ironically, the building of the pipelines that could prevent it is another red flag to environmental activists.

Republican and Democratic Senators agree on few issues in this age of deadlock, but when it comes to the advantages of natural gas they speak almost with one voice. Republican James Inhofe and Democrat Carl Levin recently wrote a Wall Street Journal op-ed arguing that American vehicle manufacturers should work harder to develop natural-gas-powered vehicles. They produce fewer greenhouse gases and last longer, while needing less maintenance than gasoline and diesel-powered cars. The senators argue that, while fuelling stations install the necessary natural-gas pumps, duel-fuel hybrids, running on the old fuel and the new, will start the ball rolling toward tomorrow’s fleet of gas cars. The two senators introduced legislation to realize these objectives with political incentives.

For the moment Putin’s Russia, with its energy power, can overawe all its neighbours. When it cut off natural gas supplies in 2006 and again in 2009, Ukraine was forced to defer to Russia’s wishes. But the Ukrainians have natural gas supplies of their own, and there are plenty of Western companies eager to help them bring it on line. That can’t happen overnight, but chances are that more natural gas worldwide is going to mean less Russian bullying. Meanwhile President Obama has a far stronger hand when it comes to facing down Putin than he would have had a decade ago.

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