Russia's aggression has Europe rethinking its calculus on fracking

Besides the obvious economic benefits and competitive advantages of allowing for freer trade and more energy exploration and development, the events of the past few weeks have starkly highlighted the geopolitical inconvenience of a European economy so deeply intertwined with Russia’s, most importantly because of their energy dependence on the same. Europe imports about a third of its natural gas supplies from Russia, and that reality makes the possibility of imposing serious economic sanctions on Russia’s recent aggression all the more difficult:

Russia, the world’s largest oil producer, exported $160 billion worth of crude, fuels and gas-based industrial feedstocks to Europe and the U.S. in 2012. While shutting the spigot on Russian energy exports would starve the Moscow government of essential flows of foreign cash, the price may be too high for European consumers and it may not alter Putin’s plans, said Jeff Sahadeo, director of Carleton University’s Institute of European, Russian and Eurasian Studies. …

Abstaining from Russian oil and gas would be “off the table” for Europe, said Marc Lanthemann, Eurasia analyst with Stratfor, a geopolitical intelligence company based in Austin, Texas. Europe risks a replay of its failed attempt six years ago to punish the Kremlin for going to war with the Republic of Georgia, when it was unable to impose sanctions after acknowledging its dependence on Russian energy.

“We’re not expecting sanctions with many teeth coming through,” Lanthemann said.

With the exception of the United Kingdom and Poland recently turning the corner, most European countries have been reluctant to expand and/or explore their own options for natural gas production. Indeed, Germany has simultaneously held off on expanding their own drilling operations while simultaneously powering down their nuclear plants in the hopes of boosting renewable energies with mandates and subsidies — resulting in little more than increased carbon emissions from the coal plants they had to bring online to make up for the subsequent shortcomings as well as continued dependence on Russian natural gas supplies (they get about 40 percent of their gas supplies from Russia).

There’s been a lot of chatter lately about the U.S. exporting more of our now flush natural gas supplies, which is definitely a helpful long-term strategy both economically and geopolitically — and besides building the requisite facilities to receive those increased exports, there’s even more that Europe can be doing to help diversify their energy supplies. As the editors of Bloomberg point out:

Breaking these links can’t be done cheaply, easily or all at once, but a patient strategy to diversify from Russian energy supplies is long overdue. It should have four parts: a stronger negotiating approach over existing supplies; new regional sources for natural gas; new infrastructure to allow delivery and distribution of natural gas in liquefied form; and alternative domestic sources of energy.

EU members currently negotiate gas prices with Russia bilaterally. Bigger countries get lower prices, an advantage they won’t wish to surrender — but Russia increases its market power by dividing its customers and discriminating among them. At a meeting last week, Polish Prime Minister Donald Tusk told German Chancellor Angela Merkel that the EU should negotiate with Russia as a bloc. It’s a good idea.

Next comes new sources of supply. The Caspian Sea region, central Asia and north Africa are capable of providing far more natural gas than they do now. Heavy investment, including in pipelines, will be needed to tap this potential. Europe’s economic and geopolitical interests lie in supporting those efforts.

And of course, Europe has its own supplies of shale gas. Geological differences might mean that Europe isn’t exactly in for a massive shale boom on the level as the United States’ overwhelming success, but there are resources there for the tapping, and Europe needs to get moving on investing in the necessary exploration and infrastructure. Fortunately, Russia’s shenanigans apparently has them thinking about it, via Keith Johnson at Foreign Policy:

On Wednesday, the European Parliament passed energy legislation that included tougher environmental rules for oil and gas exploration — but specifically excluded shale gas projects from the new regulations. This week, Poland passed tax breaks meant to juice shale gas exploration there. Big European business lobbies, including steel-makers and the EU employers’ association, just called for the continent to embrace shale gas as a way out of its energy straitjacket. …

Europe’s growing support for fracking isn’t entirely new. Business groups across the continent were calling for more shale gas production even before the Russian invasion of Ukraine triggered fears that Moscow could use energy as a weapon to prevent European powers from intervening. Even in France, home to some of the continent’s most ardent environmentalist groups, fracking’s high-profile defenders include Industry Minister Arnaud Montebourg. …

Now, though, energy security fears unleashed by Russia’s aggressive behavior have joined economic arguments in fracking proponents’ arsenal.

If Europe keeps moving to break up Russia’s energy dominance in the long term — on which Russia largely depends for the health of its own economy — Putin might eventually come to regret his strong-arming after all.