Trouble in Ukraine is “Fracking” Good for the US
Turmoil in the former Soviet Republic of the Ukraine has some interesting consequences on world energy policy. Europeans are reminded of their vulnerability to Russian energy diplomacy, the former Soviet Republics have been have been warned of the consequences of western rapprochement and the US sees opportunity.
European Union (EU) imports approximately 100.7 million tonnes of natural gas; this number represents 38.7% of imports (EU also imports 32% of its crude oil from Russia). A majority of the natural gas travels through the Ukraine (as does gasoline through the Urengoy — Pomary — Uzhgorod Pipeline). Approximately 53% of natural gas bound for Europe passes through the Ukraine, on pipeline managed by the Ukrainians. This has been a source of contention between the Ukraine and Russia, one that led to punishing natural gas rates charged by Gazprom (the world’s largest natural gas extraction company; controlling interest is held by the Russian government). In 2007 Belarus agreed to discounted natural gas in return for allowing Gazprom to purchase 50% shares in Beltrangaz (the company managing the Belarus pipelines).
For European governments, the reality of substantial reliance on Russian energy has created a situation that heavily influences European political, energy and diplomatic policies. In 2006, a pricing dispute with Russia resulted in shutdown of pipelines. Europe has significant natural gas reserves; however the investment required to exploit these fields, construct infrastructure and distribute it is significant. Russia has been able to manipulate natural gas prices to stifle European efforts to exploit those reserves. European importers are hesitant to challenge Russian policies for real fear of energy retaliation. The over-reliance on Russian energy has deprived European governments of bargaining leverage and is vulnerable to supply shocks and political blackmail. The unbalanced situation and the crisis in the Ukraine serve as an opportunity to further US energy and political objectives.
The current situation is a boon for US companies that are committed to develop US natural gas reserves. Currently the US is the world’s greatest natural gas producer (of reserves estimated at 4.2% of the world reserves). This growth in US production has been attributed to hydraulic fracturing technology. This procedure is effective but has substantial environmental opposition. Currently the US does not export its natural gas but that restriction is to be lifted by 2015. According to the New York Times (on March 5th 2014), the administration is moving “aggressively to deploy the advantages of its new resources to undercut Russian natural gas sales to Ukraine and Europe.” Though these efforts will take time to be realized, the change of policy from “energy independence” to “energy diplomacy” marks a significant pivot.
The new resource diplomacy is directed by the State’s Department’s Bureau of Energy Resources. This unit was created in 2011 (by then Secretary of State Hillary Clinton) to find ways to use the domestic energy boom as a geopolitical tool to advance US interests. With only 4.2% of the natural gas reserves and little infrastructure for international export the US reach will be short for some time.
Here are a few homeland security implications that could result from the disruption of US policy changes:
If the US attempts to engage in energy diplomacy on a meaningful level then subsidies and tax incentives would be needed to be used to encourage massive expansion of infrastructure and extraction capacity.
New Infrastructure translate to new concerns for homeland security
Domestic opposition (to increased fracking) could lead environmental terrorism
Environmental concerns (from increased fracking) are a concern of DHS
Prices fall from improved fracking technology and investment then alternative energy projects will be negatively impacted. US energy system becomes reliant on a single non-renewable source (a single point of failure).
Prices rise from increased competition for US LNG causes economic disruption. The rewards from international trade become a source of corruption or influence in US politics.
Competition with Russia causes price disruptions that make domestic natural gas extraction unprofitable. This could lead to the collapse of an industrial sector that could have far reaching and unforeseen homeland security implications due to the complexity of US economic system.
In the midst of this the Russians announced a record deal to supply natural gas to China.
Sources:
Klien, Naomi Why US fracking companies are licking their lips over Ukraine (the Guardian April 12th 2014)
Davenport, Coral and Erlanger, Steven U.S. Hopes Boom in Natural Gas Can Curb Putin (New York Times March 5 2014)
Weitz, Richard EU Seeks Energy Security Solutions to Russian Gas Challenge (World Politics Review June 3rd 2014)
The Urengoy — Pomary — Uzhgorod Pipeline: a Cold War pipeline (Pipeline International September 2010)
Smith, Shae Russian Exile: How Europe Will End the Kremlin’s Natural Gas Monopoly (Money Morning March 5th 2012)
