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February 2014

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Gasland, Russia and Hysteria Regarding Hydraulic Fracturing
by Keith C. Smith

THE POLITICS
On several occasions in late 2013 and early 2014, Russian officials have warned Europeans against following the U.S. lead in exploiting domestic natural gas and oil. Moscow has warned Europe that hydraulic fracturing (fracking) is a substantial danger to the environment and to public health. The irony of this is that Russia itself has been engaged in fracking for several years in Western Siberia and is now using technology acquired from Western companies such as BP to increase the use of vertical and horizontal drilling to extract gas from shale deposits.  The obvious explanation for Moscow’s warnings is an attempt to prevent Europe from developing gas and oil sources, thereby reducing Russian’s near monopoly position in supplying gas to Europe, and especially to the Central Europeans, who are most vulnerable to politically motivated disruption of shipments from Russia.

Major environmental groups in Europe, particularly in France and Germany, have taken to heart Russian warnings, and also those of American self-described environmentalists, such as Josh Fox, the producer of Gasland I and Gasland II. Both of these films are filled with unproven assertions that there is scientific evidence that fracking is a major danger to the environment. The Gasland films have been circulated widely in Europe, including twice in the European Parliament. Every anti-fracking claim made by an American group, no matter how tenuous the scientific evidence, is quickly repeated by European opponents of fracking, and then carried over European television networks through the RT (Russia Today) channel.  RT receives its editorial guidance directly from political advisors in the Kremlin.

Russian television regularly highlights and promotes opposition to fracking, particularly when carried out by Western firms outside of Russia. Apparently, the use of fracking technology by Russian firms is apparently safe and effective when approved by the Kremlin. A respected Russian economist, who must not understand the Kremlin’s political line, was recently quoted as saying, “Do you know what is now helping Russian gas in Europe? It is the European environmental lobby, which insisted on freezing the development of shale gas resources, thus restraining the growth of domestic production in Europe. Why the Europeans agreed to this, I do not know the answer. It is difficult to understand.” Such honesty by a Russian technocrat is in major contract to the political line of the Kremlin and that of Russia’s gas monopoly exporter, Gazprom.

The supporters of hydraulic fracturing (fracking) have been surprised by the amount of fear and hostility that exists in parts of Europe regarding this relatively safe method of extracting  a source of energy that emits significantly less carbon and other pollutants than does coal or diesel fuel. There have been noisy demonstrations in every European country where fracking has been attempted. Opponents are traveling from one country to another in order to protest, usually against the operations of Western companies. Bulgarians have journeyed to Romania, and now Russians are demonstrating in eastern Ukraine. Funding for protest rallies is flowing to Central Europe from groups in Western Europe where fracking is not even being considered.

Fracking opponents are also bolstered by support from domestic coal and nuclear industries, who also fear that their future is endangered by the possible production of cheaper and cleaner forms of energy. The hysteria regarding the relatively safe form of energy production has already resulted in fracking bans in France, Germany, the Czech Republic, Italy and Austria. Opponents have also come close to achieving a ban on fracking by the EU Commission’s Directorate General for Environment. Fortunately, opposition from Poland, the UK and the Czech Republic (that maintains a ban) was sufficient to stop an effective ban from being put in place.

Much of Europe is plagued by the failure of fracking critics, including government officials, to stay abreast of the fast-improving technologies that make exploration and development cleaner, less a burden on water and land use and more productive. Figures cited in Europe regarding U.S. methane emissions are often either based on old technology or have been discredited by more recent studies by the Environmental Protection Agency.  Too many special interests or poorly informed individuals are willing to grasp at any charge, no matter how false, regarding the alleged dangers that arise from fracking. 

THE ECONOMIC IMPACT
The impressive growth in output of natural gas (and oil) is due to a commercial climate that encourages risk taking and is facilitated by America’s unique property laws and minimal government regulation. Five years ago the United States imported 13 % of its natural gas and 57 % of its crude oil.  Today, the figures are quite different. The U.S. is almost independent of gas imports at only 8%, its oil import dependence has dropped to 45% for crude oil, and imports continue to decline each year.  It is estimated by reliable sources that CO2 levels have dropped 12% in that time, with major reductions in sulfur dioxide and mercury emissions, chemical elements that are especially harmful to public health.  The levels of small particulates from coal, that cause serious lung diseases has also decreased dramatically.

The economic benefits have been substantial. Employment in the energy sector is estimated to have increased dramatically as a result of massive investments in fracking operations.  Growth has come to previously economically poor areas of the country, from North Dakota to Texas.  Within the last five years, the unconventional energy industry has directly supported approximately 360,000 jobs, and indirectly supported employment of 350,000 people in supplies and 850,000 in goods and services. In total, the fracking boom has been responsible for securing 1.7 million jobs in the United States. Meanwhile, the U.S. trade deficit as a percent of GDP shrank from 6% in 2005 to 2.7% of GDP by mid-2013.  Several large industrial firms are moving to the U.S. from Europe and Asia in order to benefit from significantly lower U.S. energy prices.

Natural gas prices are 3-4 times higher in Europe, and 5-7 times more costly in parts of Japan and Korea.  Crude oil prices in the U.S. now range from $15-20 cheaper than in Europe and Asia.  Increased gas production in the U.S. has already improved the bargaining power of many import dependent countries in Europe. Within the next few years, the U.S. will become a natural gas exporter, and this will have provide additional benefits to those countries dependent on energy imports – approximately 90% of Europe. Asian countries should also profit directly and indirectly from the increase in available supplies of LNG on the world market. The one downside is that although most of Europe is already benefiting from the “fracking revolution,” increased U.S. crude oil production and the greater output of product from new and enlarged refineries, is hastening the closure of at least a dozen obsolete European refineries.  Some European refineries will be unable to compete with U.S. refiners, even taking into account shipping costs. Many European industries that depend on energy inputs will also be at some disadvantage due to relatively higher energy costs. For example, the German chemical giant, BASF, is already moving plants to the U.S. in order to capture cheaper energy prices.

ENVIRONMENTAL IMPACT
Investment in solar and wind energy has soared in the U.S. at the same time as hydrocarbon production has increased. Large solar fields are being constructed in California and Arizona, and the output of wind energy is increasing rapidly in the mid-West, Texas, and off the East and West Coasts. Yes, the U.S. still produces more than its share of green-house gases, but the gap is quickly narrowing.  The major effect of fracking has been to reduce imports and lower harmful emissions.  This has occurred through replacing coal-fired power plants with gas generators that emit half as much CO2, no SO2 or mercury. In addition, gas does not spew out the particulates that are so damaging to public health. There is no evidence from the American experience to show that the development of renewable energy is being held back by increased natural gas production.  

In the U.S., significant advances in energy efficiency have taken place, particularly in the transportation sector. Without advances in energy efficiency and the production of renewables, natural gas prices in the U.S. would be significantly higher and no one would be talking about gas exports from America to Europe and Asia.

At the same time, however, Germany is now importing coal from the U.S. that is no longer needed as coal is replaced by gas as the fuel of choice for new and modified power plants. Taking into account government subsidies for renewable energy, German energy costs are substantially higher than many other EU members. Meanwhile, Europe remains dependent on high-priced Russian natural gas and Poland will soon be importing Qatari gas that is even more expensive than that from Russia.

The eventual implementation of the Third Energy Package will help modify Russian prices, but gas import costs will continue to remain much higher in Europe, especially if protesters are able to stop exploration and development projects. Europeans opposed to fracking need to ignore the voices of doom regarding hydraulic fracturing and do a thorough job of examining the latest science and best practices concerning the environment and health effects of this method of hydrocarbon extraction. Even Russia, which actively discourages Europe from engaging in fracking, is at the same time ramping up the use of this technology in its West Siberian fields. The strong opposition within Europe to fracking should be resisted by the countries directly affected. For one thing, Russia charges Central Europeans at least 50% more for gas exports than it does in many Western European markets; countries that already have easier access to imports from other sources. It is not by accident that the Nord Stream and South Stream pipelines were designed to by-pass Central European countries that pay the most for Russian gas. These pipelines provide political leverage, not increased efficiencies, profit for Russia, or price reductions for importing countries. It is no coincidence that Russian officials are warning of the “dangers” of hydraulic fracturing, even though they support it at home.

In summary, unsubstantiated fear of hydraulic fracturing that is being promoted in much of Europe threatens to keep the region dependent on powerful and nontransparent foreign economic and political interests. The reaction this fear should be a more widespread education regarding the best science and actual field experience.

A greater awareness of the reality concerning hydraulic fracturing will better serve the security and economic development interests of this region so important to trans-Atlantic relations. In today’s world, strong, vibrant economies on both sides of the Atlantic are essential if the major issues of war, peace and prosperity are to be resolved. Greater domestic energy production carried out in an environmentally responsible manner can add significantly to Europe’s ability to play a strong role on the world scene.bluestar


American Diplomacy is the Publication of Origin for this work. Permission to republish is freely granted with credit and a link back to American Diplomacy.


Author Ambassador Keith C. Smith (ret.)

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