The Joplin Globe, Joplin, MO

Business

April 2, 2014

US calls on Europe to wean itself from Russian gas

BRUSSELS — The United States on Wednesday called on Europe to wean itself from a dangerous dependency on Russian gas, saying it was time to stand together and bring an end to the Kremlin’s use of energy supplies as political leverage.

Left unsaid was the European Union’s reluctance to follow the United States headlong into shale gas extraction, which has transformed the global energy scene and turned the U.S. from importer into a nascent exporter. Or its refusal to fully re-embrace nuclear power in the wake of the Fukushima disaster in Japan.

And even if it tried to become independent, it would take Europe years to develop promising sources, such as shale deposits in Ukraine and Poland — and with no guarantees of success.

Europe’s reliance on Russia for a third of its energy needs has left the Kremlin in a position of power, emboldening it as it swept in to annex the Crimean Peninsula from Ukraine last month, with little more than diplomatic protest and a few sanctions in return.

In his first interview since fleeing to Russia, Ukraine’s ousted president, Viktor Yanukovych, said Wednesday that he was “wrong” to invite Russian troops into Crimea and vowed to try to persuade Russia to return the coveted Black Sea peninsula.

Yanukovych told The Associated Press and Russia’s state NTV television that he still hopes to negotiate with Russian President Vladimir Putin to get the annexed region back.

“Crimea is a tragedy, a major tragedy,” the 63-year-old Yanukovych said, insisting that Russia would not have taken over Crimea if he had stayed in power. He fled Ukraine in February after three months of protests focused on corruption and on his decision to seek closer ties to Russia instead of the European Union.

His ouster and Russia’s subsequent annexation of Crimea added fresh urgency to calls for Europe to diversify its energy policy.

“It really boils down to this: No nation should use energy to stymie a people’s aspirations,” U.S. Secretary of State John Kerry said in Brussels. “It should not be used as a weapon. It’s in the interest of all of us to be able to have adequate energy supplies critical to our economies, critical to our security, critical to the prosperity of our people.”

Russia’s energy dominance was most recently highlighted when state-controlled Gazprom carried out its threat this week to raise natural gas rates for Ukraine. But Russia has turned off the valves to Europe before, in 2006 and 2009.

Despite its contentious history of dependence, European production has been in steady decline as aging nuclear plants go unreplaced, polluting coal declines in popularity and North Sea oil dwindles.  

In the meantime, the United States cannot ship liquefied natural gas or oil to Europe in the quantities needed for several more years, and although Kerry didn’t mention hydraulic fracturing, the environmentally taxing process of extracting shale gas is an off-limits topic in many European countries, with uncertain success even in those countries willing to try.

But Kerry’s call made clear that the United States wants Europe to take more responsibility for its own energy supply, rather than trusting what is increasingly seen as a politically fragile network of pipes all leading to Russia — with many of them passing through Ukraine.

Countries that emerged from the orbit of the Soviet Union are among the most focused on finding their own energy resources, although any profits are purely hypothetical. Yanukovych, signed deals with Shell and Chevron to search for shale gas, even as he hedged his bets by signing a deal at the Kremlin for a major gas discount and Russian loans.

The expected price increases marked the end of that deal, which hinged on Yanukovych’s loyalty to Russia. Kerry said the U.S. and EU will try to provide a measure of short-term relief by sending gas through Poland, Hungary and Slovakia, but Ukraine’s vulnerability would remain — as would Europe’s.

Leslie Palti-Guzman, an energy analyst with Eurasia Group, said the support offered by the United States hinged on long-term plans and could do little to help the current crisis. For now, Palti-Guzman said, the loans from the European Union and U.S. were the best Ukraine could hope for.

So, many look to the mid-term, at best. The U.S. is already a potential exporter of LNG, which unlike natural gas can be shipped across seas in tankers because it is in liquid form. Once shipping facilities are fully operational, LNG supplies could theoretically make up for half of Europe’s gas flows now coming from Russia. But Asia will be the primary destination for American LNG, analysts said.

Like Ukraine, Poland has signed on with Chevron for shale gas exploration that has yet to pan out, and eased some of the regulations that President Donald Tusk said were dragging down the process. Still, the number of companies holding exploration licenses has dropped by half since 2011.

Shale gas is considerably more complicated in western Europe, where it is banned in France and regulated out of existence in Austria, Germany and the Netherlands, according to Laszlo Varro of the International Energy Agency. But Britain’s Conservative government has embraced the possibility, and exploration is well underway despite limited potential.

“Even if you have the full political support for shale gas development — like in the case of Poland and the United Kingdom — the underlying geology is much less favorable than the United States,” he said. “The formations are deeper, the fracking techniques are more difficult, the costs are higher.”

Also, Varro added, the U.S. has a century head-start in its domestic oil and gas industry, with 1,800 modern drilling operations compared with just a couple dozen in Europe. An entrenched drilling industry has not softened the enduring debate over fracking in the United States, where critics want stricter regulations or bans to protect air and water from pollution.

Anthony Ingraffea, a former energy industry engineer-turned-critic, said Europe would do better to double down on renewable energy, following Germany’s lead.

“The only truly secure and independent energy source for every country on Earth is the pallet of renewables,” said Ingraffea, an engineering professor at New York’s Cornell University.

Germany is attempting a bold shift out of nuclear energy and into renewables. That effort, however, is proving more difficult and expensive than the government had expected.

Complicating matters are the links between multinational energy firms and Russia: BP, for example, has a 20 percent stake in the state-owned oil firm Rosneft, and Shell has a significant share in Russia’s Sakhalin-2 oil and gas platforms in the Arctic. The firms have largely avoided commenting on the fallout of Russia’s dispute with Ukraine.

And although European governments have paid lip service to the need for increased energy independence, they have not offered any obvious solutions. The one that might seem most evident to the U.S. administration — shale gas — is the one most difficult for many countries to accept or accomplish.

It could leave Moscow in a position of power for a long time. “The European Union has been working on diversification for many years now,” Palti-Guzman said. “The problem is that Russia will remain the main supplier until 2020 and maybe beyond that.”

 

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