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Gas Drilling Boom Rattles Russians

Putin comes out against fracking as economic danger

October 1, 2012
By KEVIN BEGOS - Associated Press Writer , The Intelligencer / Wheeling News-Register

PITTSBURGH (AP) - The Kremlin is watching, European nations are rebelling, and some suspect Moscow is secretly bankrolling a campaign to derail the West's strategic plans.

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.

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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 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.

Pace Global, an international consulting company based in Virginia, believes that shale gas costs more to extract than the current market price. Pace recently released a report called "Shale Gas: The Numbers vs. The Hype."

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.

 
 

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