Fracking: Fire

EU Perspectives has already considered three of the four Greek elements: earth, water and air. Should commercial fracking become common-place in the EU it will have the greatest environmental impact on these three elements.   The fourth in this series “Fire” is going to look at the other side of the coin – the geopolitical implications of fracking and the reason why fracking – in spite of the environmental implications involved – has so many adherents.

In the original Rudyard Kipling version of The Jungle Book, the Banda-log (a bunch of leaderless, slightly barmy troupe of monkeys) ask Mowlgi to show them how to weave sticks and canes together to protect them from the wind and the rain.  When Disney adapted The Jungle Book for the big screen in the 1960’s he diverged from the original by giving the Banda-Log a King –  King Louie. King Louie is not in the least bit interested in how to weave sticks and canes together as a protection from the elements. Disney’s King Louie wants to learn “the secret of fire”.

Knowing how to exploit fire is the key to influence, power and – magic. New technologies, inventions and discoveries are possible only because mankind can tap into the power of (as King Louie would put it), “man’s red flower”:  3-D printing, instant messaging, warm housing, sky-scrapers, images showing the outer edges of the universe, food on the table, ….the list could go on and on and on …. The day oil and gas dries up so too does the magic and it’s back to Mowgli’s law of the jungle for mankind. ….and mankind does fret over the day that oil and gas will dry up.

Newspapers are awash with endless articles on “peak” statistics, dwindling supplies and scarce resources. So potent is the magic of fire mankind is prepared to enter into the dark arts and pursue black magic to source its fix. The most inhospitable places on earth, such as the Arctic, are being eyed up as potential sources of supply, Canada is prepared to sacrifice her environment for the sake of tar sand and deep water drilling is going full speed ahead regardless of environmental disasters such as BP’s debacle in the Gulf of Mexico. Fracking is just another example of the lengths mankind will go to to access his magic fix.

Dwindling supplies and the lack of alternatives to fossil fuels aside, the other issue of real concern for the EU is security of supply.  Europe, like many other developed regions/states – be it Japan or China (and formerly the US) – rely heavily on imports to meet the energy needs of their industrial base and domestic markets. For the US hydraulic fracking has changed the terms under which it operates.  It is estimated that US net imports of natural gas fell 30% between 2007 and 2010.

Compare this to the EU which currently imports 60% of its gas. Germany, Austria, Greece and the eastern half of the EU are heavily dependant on just one state to supply their gas: Russia. This figure is set to rise to 70% – possibly 80% – by 2030 as indigenous conventional supplies dwindle and demand grows. Energy security is an absolute priority for all EU Member States and with good reason.

Russia has proven itself to be a fair-weather friend and is quite prepared to turn off supplies as and when it suits her political ambitions. At the beginning of January 2006, petulant at the prospect of a pro-western government taking hold in Kiev, President Putin ordered Gazprom to double the prices it charged the Ukraine. Just three years later, in the middle of a particularly harsh winter, Putin upped the ante and ordered the taps, supplying natural gas to the Ukraine, be turned off. This had the knock on effect of depriving six EU Member States of their gas supplies. It is not just the eastern States of the EU that need to worry.

Many North Western countries in the EU are locked into long-term contracts with North African or middle-eastern countries. The Arab spring was a reminder that instability in these regions can affect supply and push up prices. To get their fix EU governments must keep their suppliers sweet. This can often grate – especially when the supplier resorts to bullying (Russia), terrorism (Libya), threats (Iran) or erratic behaviour (Venezuela) to get their way.  As Lawson points out “For decades, the West in general, and the U.S. in particular has had to shape, and sometimes arguably misshape, its foreign policy in the light of its dependence on Middle Eastern oil and gas.” For this reason alone fracking, like an expensive French perfume, is very alluring indeed.

The tantalising prospect of energy independence from countries in the Middle East, from Iran and Russia has some politicians slavering at the mouth at the prospect of these petro-States finally loosing, in the words once again of Lawson, “their biggest source of global influence.” Not that shale gas is going to meet all of Europe’s energy needs by any manner of means. Politicians at both a national and EU level are well aware that exact figures of unconventional gas in Europe are speculative.

Further, even were Europe to go full speed ahead with commercial fracking it would not be nearly enough to halt all imports. The most commercial fracking could do would be to keep the EU’s current imports at 60%  rather than the predicted increase to say 70-80% by 2030. The one key advantage of developing and encouraging a global fracking industry, however, is that it offers competition. Once natural gas from fracking really takes off the EU need no longer lean disproportionately on but a handful of suppliers. Other countries are coming forward as possible alternatives. Possibly, North America. In 2010 the US over-took Russia as the largest producer of natural gas – thanks to hydraulic fracking.  There are no plans to build pipe-lines across the Atlantic – an impossible task. The solution rather lies in the transport of liquefied natural gas (LNG).

In the decade prior to the commercialisation of shale gas the US was fully expecting to have to import large quantities of LNG.  As such they invested substantially in LNG storage and transport facilities. In 2009, for example, RT reported, Gazprom plans to take up to 10% of the North American LNG market by 2020, with the Yamal and Shtokman fields to be the main resource base for shipments to the U.S. 

With the rapid increase in natural gas from hydraulic fracking this has proved unnecessary and it has been suggested the US is using all but 10% of its LNG capacity. Fast-forward across the Atlantic and the EU too has a rather large LNG infrastructure – particularly the North West of Europe, making it potentially possible for the US to export some of its excess shale gas to Europe.

The other advantage of greater competition is lower prices – always an interesting prospect to economies, such as the EU’s, which is firmly in the doldrums. Consider, for example, these figures“The spot price for natural gas in the USA (Henry Hub) has fallen from a peak at $13/MBtu in mid‐2008 down towards $2/MBtu in 2012.” Lower prices should be viewed with some caution however – should there be such a glut of natural gas as a result of hydraulic fracking – it may not be in the interest of the energy companies to keep investing in fracking.

At the beginning of this series it was asserted that fracking appeared out of nowhere and  like a force 12 side-wind, swept commonly held assumption about the energy market off its perch. The Guardian’s reporting of fracking is indicative of this trend.

In January 2006 when the Ukraine and Russia entered into their first gas spat the editorial in The Guardian stated, Russia uses Gazprom to set its prices as a way of exerting political influence, and No government can afford the lights to go out, so no government can ignore this kind of threat. When Russia and the Ukraine entered into the second gas spat in January 2009 – a mere four years ago – not a single European newspaper mentioned the “F” word. Between 2005 and 2008 “fracking” was reported only within the context of a common swear word not within the context of hydraulic fracking. In 2009 not a single report on fracking was published in The Guardian. In 2010 there were seven reports. By 2012 a whopping 207 reports had been published.

It is not just editors at The Guardian who have taken note. So too has the “old bully” Russia. In September 2012 it announced that it was abandoning plans to develop the Schtokman gas fields underneath the Barents Sea – the very same field that in 2009 was going to supply 10% of the North American market in liquefied gas. From a geo-political and market point of view, hydraulic fracking has a lot to recommend.

So, can fracking work in Europe? Will citizens in the EU Member States accept the tantalising prospect of lower prices and a secure supply through competition in return for black magic? In the final section on Fracking EU Perspectives is going to examine what role, if any, the EU can or should play in trying to regulate the commercialisation of shale gas extraction across the 27 Member States.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s