Next cold war? Gas drilling boom rattles Russia

The Kremlin is watching, European nations are rebelling, and some suspect Moscow is secretly bankrolling a campaign to derail the West's strategic plans.
Associated Press
Oct 1, 2012


It's not some Cold War movie; it's about the U.S. boom in natural gas drilling, and the political implications are enormous.

Like falling dominoes, the drilling process called hydraulic fracturing, or fracking, is shaking up world energy markets from Washington to Moscow to Beijing. Some predict what was once unthinkable: that the U.S. won't need to import natural gas in the near future, and that Russia could be the big loser.

"This is where everything is being turned on its head," said Fiona Hill, an expert on Russia at the Brookings Institution, a think tank in Washington. "Their days of dominating the European gas markets are gone."

Any nations that trade in energy could potentially gain or lose.

"The relative fortunes of the United States, Russia, and China — and their ability to exert influence in the world — are tied in no small measure to global gas developments," Harvard University's Kennedy School of Government concluded in a report this summer.

The story began to unfold a few years ago, as advances in drilling opened up vast reserves of gas buried in deep shale rock, such as the Marcellus formation in Pennsylvania and the Barnett, in Texas.

Experts had been predicting that the U.S. was running out of natural gas, but then shale gas began to flood the market, and prices plunged.

Russia had been exporting vast quantities to Europe and other countries for about $10 per unit, but the current price in the U.S. is now about $3 for the same quantity. That kind of math got the attention of energy companies, and politicians, around the world.

Some European governments began to envision a future with less Russian natural gas. In 2009, Russia had cut off gas shipments via Ukraine for nearly two weeks amid a price and payment dispute, and more than 15 European countries were sent scrambling to find alternative sources of energy.

The financial stakes are huge. Russia's Gazprom energy corporation, which is state-controlled, had $44 billion in profits last year. Gazprom, based in Moscow, is the world's largest producer of natural gas and exports much of it to other countries.

But last month Gazprom halted plans to develop a new arctic gas field, saying it couldn't justify the investment now, and its most recent financial report showed profits had dropped by almost 25 percent.

The U.S. presidential campaigns have already addressed the strategic potential.

A campaign position paper for Republican Mitt Romney said he "will pursue policies that work to decrease the reliance of European nations on Russian sources of energy."

In early September, President Barack Obama said the U.S. could "develop a hundred-year supply of natural gas that's right beneath our feet," which would "cut our oil imports in half by 2020 and support more than 600,000 new jobs in natural gas alone."

Poland's Ministry of the Environment wrote in a statement to The Associated Press that "an increased production of natural gas from shale formations in Europe will limit the import via pipelines from Algeria and Russia."

The issue has reached the highest levels of the Kremlin, too.

Hill, of the Brookings think tank, heard President Vladimir Putin speak in late 2011 at a Moscow gathering of academics and media. She said in a blog post that "the only time I thought that he became truly engaged was when he wanted to explain to us how dangerous fracking was."

But one top Gazprom executive said shale gas will actually help the country in the long run. Sergei Komlev, the head of export contracts and pricing, acknowledged the recent disruptions but predicted that the U.S. fuels wouldn't make their way to Europe on any important scale.

"Although we heard that the motive of these activities was to decrease dependence of certain countries on Gazprom gas, the end results of these efforts will be utterly favorable to us," Komlev wrote in an email to the AP. "The reason for remaining tranquil is that we do not expect the currently abnormally low prices in the USA to last for long."

In other words, if the marketplace for natural gas expands, Russia will have even more potential customers because it has tremendous reserves.

Komlev even thanked the U.S. for taking the role of "shale gas global lobbyist" and said Gazprom believes natural gas is more environmentally friendly than other fossil fuels.

"Gazprom group generally views shale gas as a great gift to the industry," he wrote. When natural gas prices rise, "it will make the U.S. plans to become a major gas exporter questionable."

Whether exports happen involves a dizzying mix of math, politics and marketplaces, along with the fact that U.S. natural gas companies — and their shareholders — want prices to rise, too.

James Diemer, an executive vice president for Pace Global, an international consulting company based in Virginia, believes that shale gas costs more to extract than the current market price. Pace, which recently released a report called "Shale Gas: The Numbers vs. The Hype," has been studying shale gas for Gazprom and other clients.

"The capital will stop flowing" to U.S. shale gas, and the price will go up, Diemer predicted. He would not divulge the kind of work Pace is doing for Gazprom. Pace is owned by Siemens, a German company.

Pace's work for Gazprom has raised some eyebrows in Washington, and Hill noted that industry watchers in Europe already believe Russia is bankrolling environmental groups that are loudly opposing plans for fracking in Europe, which could cut down on Russia's natural gas market.

"I've heard a lot of rumors that the Russians were funding this. I have no proof whatsoever," she said, noting that many critics give the rumors credence because Gazprom owns media companies throughout Russia and Europe that have run stories examining the environmental risks of fracking.

Gazprom dismissed such conspiracy theories, saying that "nothing could be more out of touch with Gazprom's inherent interests," because the shale boom promotes gas as an abundant, affordable energy source.

Many U.S. media outlets, including the AP, have run stories about shale gas and the environment. Regulators contend that overall, water and air pollution problems are rare, but environmental groups and some scientists say there hasn't been enough research.

U.S. energy companies are eager to export natural gas products. The issue is sensitive enough that the Obama administration has delayed a decision on export permits until after the election. In April, the Sierra Club sued to block one plan for exports, saying it would drive up the cost of domestic natural gas and lead to environmental damage.

But just the potential for exports could allow others to seek lower prices from Russia, said Kenneth Medlock III of the James Baker Institute for Public Policy at Rice University in Houston.

"It changes the position at the bargaining table for everybody," Medlock said. "You stack all that up, and you start to realize, 'Wow.'"

There's one enormous unknown with the shale gas bounty in the U.S., Hill said. Unlike in Russia and some other countries, neither the government nor any one private company can really control or direct it.

"The question is, can the U.S. do what the Russians do, which is use this as a political tool?" she said.



Darwin's choice

How long before the greedy politicians get there hands in the mix..........

Don S

I agree with Darwin !!!! We should build more gas fired electric generators, faster !! There should more of a push for MORE natural gas cars and buses. Combine natural gas with diesel fuels to add more power and reduce emitions on the road and reduce pollution from jet airplanes. So, make your voice heard to keep our gas here in the USA. We don't need to sell it to other countries !!!!!!


And one wonders why leftists are so against fracking!! What's good for our country, the left hates!!!!

The Bizness

Do you not see that we have a problem here for two reasons? The first is that this is even a viable option is scary. The Second is that this will only contribute to climate change even more.

Do you all know about permafrost, and what is held in there?

The reason this is an option is because we have burned enough fossil fuels that the north is now opening up and becoming free of ice. Many scientist think by 2025 we will have an ice free arctic in September! That is not a good thing! The arctic acts as a regulator for our planet, think of it like the air conditioner for the globe. Also the white ice, and snow, reflect a lot of sunlight due to its high albedo, which allows less heat to be trapped on earth.


@ The Bizness:

Nat-gas "will only contribute to climate change even more"?

Nat-gas is a low carbon fossil fuel alternative.

The U.S. needs to get into the LNG business which will create thousands of jobs and increase tax revenue.

The U.S. cannot produce all its future energy needs with windmills and solar.

Besides why are wind farms not being fined by the EPA for killing millions of birds, some endangered???? Hypocracy.

The Bizness

@ Contango

Sure Nat-gas is lower carbon, but it still emits carbon unless we are sequestering it.

As for teh bird thing, that is a common misconception, wind farms are shown to kill far fewer birds than many other man made structures....Sure the number will rise but Wind and Solar is the way of the future so might as well move along quicker.


I am going to have to break with my Obamatron tradition, for a moment, here...and say something.

Solar and Wind is NOT the way of the future. Electromagnetism is. Solar and Wind will NEVER produce a Free Energy society. Electromagnetism will. Solar and Wind will NEVER reverse the damage that has already been done. Plasma Arc Reactors will (as they are able to convert any organic form of waste into clean energy).

Perhaps, one day, the Big Energy lapdogs will wake up and realize that Gravity is merely a secondary effect of Electromagnetism (which is the true physically dominant force in the Universe).
Perhaps, one day, they will wake up and study Nikola Tesla (as well as the likes of Kristian Birkeland, Irving Langmuir, James Clark Maxwell, and the list goes on), Plasma Cosmology, Electric Universe Astronomy, etc. etc. Even NASA has now stated that Plasma makes up 99% of the known Universe.

Electrical Engineers produce things. Gravitational Model theorists just sit around and theorize. <--- If you can read that entire document (and, by entire, I mean everything through measures to safeguard development and implementation on down to the example budget...not just the Intro memo), understand it, and then come back here and tell me that solar and wind are anything more than just another zero-sum game (like oil, coal and nuclear)...I will eat my hat.

We will move from Oil to Electromagnetism. Solar and Wind will be nothing more than a footnote in the pages of history.

Really are you ...

I have been trying to prove a point for some time now that there is a way to remove the shackles of dino technology. Those shackles are halting the United States from great strides in improving our standards of living. Einstein had to amend his theory of relativity with what he called special relativity. To try and explain that over space and time, when things move extremely fast, things are distorted. Electricity moves at the speed of light, but slowed by the movement of electrons in whatever it is being conducted through. My point is supported by the Orion Project, not one of those things in the report, so there is a way. Multiple ways.


@ The Bizness:

The cost-benefit ratio regarding energy production for the "Warmers" is becoming absurd.

It's like the "Warmers" won't be satified until the U.S. is plunged into a centrally planned and controlled "Dark Ages."

Better inform the Sierra Club and other environmental groups who are protesting the construction of wind farms across the country that they are wrong.


Oh brother, here we go again. The "drill, baby drill!" industry dusts off an old trick to defend environmental recklessness - those tree huggers must be commies out to ruin the American economy. That's what they said about DDT, about clean air standards, about taking lead out of gasoline, about asbestos -the list goes on.

Fracking must be done with great care. The potential for irreversible environmental damage is great, as are the hazards to people who drink the groundwater at risk. The potential for abundant natural gas is no excuse for recklessness. We still need to do more to conserve energy, and to utilize more renewable sources.


@ Factitious:

Ontario currently has over 500 nat-gas and oil wells in and around Lake Erie.

They've been drilling for at least 70 yrs.

Someone better tell 'em that they're damaging the Lake.

70% of the health problems in the U.S. are caused by three things:

Lack of exercise

What are the Progressive central planning programs to solve the above? Reduce the size of soft drinks?

Asbestos, DDT and the other environmental 'catastrophes' are 'small potatoes'
in comparison to our overall self-inflicted health issues.


I don't see anything in the foreseeable future but natural gas as a stepping stone away from other more carbon dense pollutions. Factitious is right. Great care. The producers of the product will need to pay for any degration or damage. The biggest problem I see is that methane escapes into the atmosphere during the fracking process. This must be captured. The methane being released stays in the atmosphere and does more damage than Carbon does as a greenhouse gas.

swiss cheese kat's picture
swiss cheese kat

The anti-frackers need to hug more trees.

@ The Bizness,

Windmills are stupid. Windmills shut down and quit producing electricity if the wind speed is over 37 mph, otherwise they would self destruct. That is the terrible secret about windmills the greenies don't want you to know about. Without govt subsidies, nobody would be erecting windmills.


Amen from NASA !


Hitting the "Like" button on JACKEL's "Amen from NASA" comment : P

The Big Dog's back

Without Government subsidies we wouldn't have natural gas, oil, nuclear power, coal fired plants and basically any energy source.