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How America’s shale gas revolution makes Putin ever weaker

5 March 2014

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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Show comments
  • tjamesjones

    It’s one of life’s ironies that environmentalists are against fracking. I think it exposes their true motives better than anything else.

  • The Commentator

    I agree, Putin’s in a weak position. If only he had run up $16 trillion worth of debt he’d feel a lot more secure. The Russians have made a big mistake creating a massive budget surplus and vast foreign currency reserves. Bet they’re wishing they were in the EU!

  • the viceroy’s gin

    The global warmingist nutters in the US have declared a jihad against coal, meaning that coal is quickly being pushed out of electricity production, and being replaced by natural gas. In other words, the US will itself consume all the additional natural gas that they produce, and that US natural gas, fracked or otherwise, will have absolutely zero effect on Putin.

    You can go ahead and pull up the US coal and gas production/usage projections for the next 20 years and you’ll be able to confirm all this for yourself. It’d be smart if you Speccie kids did such background work, before you began blathering absurdities.

    There is an answer to the problem, and it’s to ignore the global warmingist envirowhackos, but you Speccie kids are confirmed members of that idiot fraternity, it appears.

  • Chris Bond

    Is anyone buying this propaganda?


    • Dan H

      Not even the Pentagon buys this garbage, they’re warning the US has between 2015-2020 to get its house in order then it’s lights out. Fracking is a bubble driven by money printing and zirp to offset energy collapse.

      Americans and their “energy independent” propaganda

  • colliemum

    Two questions, one (tentative) answer:

    1) If fracking makes Putin poorer – why don’t we frack?

    2) If fracking makes Putin poorer, doesn’t it also make the ME oil sheiks poorer?

    Answer: we don’t frack so as not to make the ME poorer and enrage their sheiks, Putin doesn’t come into it.

  • Smithersjones2013

    With the ever increasing demand for energy the idea that the discovery of new energy supplies has weakened the power of energy suppliers is at best premature. Sure it may alter the dynamics a little but there is as much revulsion amongst Europe’s power mongers to being the lapdog of the USA as there is a fear of Russia

    Either way I doubt it wlll make much difference to us. The prices will continue to rise and that largely will be down to those very same European powermongers and their subservient British quislings. They say the enemy of my enemy is my friend. Russia doesn’t seem quite the evil force it once did………..

  • Tom Tom

    Returning to Facts

    When did Britain claim Gibraltar ? Treaty of Utrecht 1713

  • Frank

    Just quoting Matt Damon’s film signifies that you have a very shallow grip on this topic.

  • Tom Tom

    The US is not even a Top 10 trading partner with Russia. The US does not export gas which is why its domestic prices are below world market prices. Shale Gas would be less economic at market rates of interest as opposed to Fed Rigged Market rates.

    Oil is Russia’s primary export not gas. China has huge supply contracts with Russia and Iran.

    These articles are fatuous. Next we will be independent of China by making PCs in Wigan or perhaps we will dig coal in Selby rather than be dependent on the US for wood chips to keep Drax generating 7% UK electricity.

    I would prefer not to be bombarded with half-wit commentary from people telling us the USA is able to live forever in Debt Junkie Paradise because God gave it a Perpetual Annuity

    • itdoesntaddup

      The US exports gas to Japan, Mexico and Canada already. More destinations only await the start-up of more LNG capacity.

      China has relatively few contracts with Russia: neither trusts the other enough.

  • In2minds

    So a summary here might be less Russian bullying but more from the Green

  • monty61

    Can’t say he looks terribly weak to me. The EU will do nothing so long as it’s got its armies on the Baltic States’ doorstep and its boot on the gas pipe to Germany, meanwhile the the only country that could really hurt this gangster state’s interests – the UK – won’t lift a finger to do the obvious which is to freeze their ill-gotten gains and launch a proper money laundering enquiry, no doubt for fear of de-railing the London funny money gravy train.

    • Tom Tom

      most important relationship in Europe is Germany and Russia (not
      France) and globally Russia and China and Russia and India. The US is
      peripheral to the Eurasian Land Mass and knows it

  • Alexsandr

    there is another country with shale gas reserves that could make it a lot less dependant on Russia and dodgy Arab countries, that could well do with some relief on energy prices. But their government is too in awe of the greenery lot and wont get their finger out and get fracking going.

    Where is this country with the daft government?

    answers on a postcard please to

    Stephen Lovegrove
    3 Whitehall Place
    SW1A 2AW

    • telemachus

      Not just the greeney lot
      The home counties brigade want to banish fracking to the great swathes of northern wasteland
      Keep the greens happy by making Sussex a giant wind farm
      I am happy for them to frack in the North
      It brings jobs and prosperity

      • The Laughing Cavalier

        It is the season of sackcloth and ashes. I have agreed (more or less) with Socrates’ somewhat dim pupil. What is the world coming to? Frack around the clock.

        • telemachus

          In Sussex?

          • The Laughing Cavalier

            Especially Sussex, and everywhere else as well.

    • Colonel Mustard

      There is a reference to that daft government’s fear of the “strident domestic lobby” in the latest Standpoint magazine, not pertaining to the water melons but the same timidity applies to almost every similar strident lefty/trendy “cause”.

      And the same article describes the “Putinian system of government” as “elections are manipulated, regime insiders give their loyalty in exchange for the licence to steal, big business operates in close cahoots with the government, and popular support is bought with hydrocarbon profits . . .”

      I read that and couldn’t see much difference to the daft system of government here, except that the popular support (of the left wing) is bought with benefits and subsidies paid for by taxpayers money.

      • BarkingAtTreehuggers

        Left wing, i.e. the Camerloon Yeo Con Artists surely.

        • Colonel Mustard

          “So, . . . ” is not an engagement or argument I have any time for. “So, . . .” is not what I wrote but what you imagine or create.

          I’m afraid you have far from “Gotcha” it. Start by limiting yourself to what I actually wrote not your fanciful adornment of its infinitely possible implications in the mind of someone like you.

          • BarkingAtTreehuggers

            I’ll keep it really simple for you then.
            ‘Running out of other peoples’ money’ (a well-known Thatcherite platitude) was dissected here in response to your assertion as to what a watermelon/lefty (the same thing?) was.

            When you admit that you know nothing then I will do the same. You get me?

            • Colonel Mustard

              Keeping it simple is not the same thing as making it up. My comment contains no reference to Thatcherite platitudes and no assertions about what a watermelon is/was.

              I don’t need any ultimatums from the likes of you, thanks. Since my comment was articulating a personal impression about the nature of current government in the UK as it relates to a quote from a published article the question of knowing nothing let alone admitting it does not arise in this case. I respectfully suggest you wind your neck in and write your own comments rather than trying to “improve” mine in order to indulge your ad hominem tendencies and desire to appear clever.

              Good day to you.

    • BarkingAtTreehuggers

      Isn’t it odd indeed, there is this nation, its Parliament, although not elected by the people, is full of GREEN politicians. How did they all get there? Why are they tabling and legislating ideas that have zero public support whatsoever? They install electric charging points in the public realm without consent, every household is required by decree to store 5 no. different coloured bins on their land, white artistic sculptures are erected all over the countryside (no, this is not about Jaume Plensa), even the Secretary of State for Education will now make it mandatory by diktat for the populace to read his new GREEN bible.
      Did we vote for that? Was that in a manifesto? What is going on?

      answers on a postcard

      The Electorial Commission
      Centralist Ineptocrat London
      EC1Y 8YZ

      (well, London London London again, innit?)

  • kyalami

    Use natural gas to generate electricity and buy a Tesla.

    • Tom Tom

      Britain does use natural gas to produce electricity – that is the problem

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