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Shale Gas & The Re-Shaping Of European Power Politics

As UK Shale Gas Could Shake Government Coalition points out, Russia clearly holds now the balance of power when it comes to European energy security. However, the current Eurozone economic crisis and the development of massive European shale gas reserves are set to combine to re-shape entirely the landscape of European power politics – no matter what the politicking of Brussels or Moscow.

Of the rich band of shale gas across much of northern and Eastern Europe, and large deposits are thought to be beneath Ukraine, Poland, Germany, France, the UK, Hungary, Bulgaria and Romania. In early September 2011, the Ukraine, once again clashing with its Russian gas providers over prices and outstanding payments, and committed to cutting Russian gas imports from 34 billion to 12 cubic metres within five years, has just signed a deal by which Shell expect to invest up to $800 million in a bid to speed up the Ukraine’s domestic natural gas production. The country’s reserves could well prove to be the biggest in Europe.

Across in the Balkans, Chevron is also currently prospecting shale deposits in NE Bulgaria, believed to be between 300 billion and 1 trillion standard cubic feet (Tcf) of gas. But it is in Poland that shale gas development is currently full steam ahead – creating a potential dilemma for the European Union.

With France and Switzerland having already banned the hydraulic fracturing procedure vital to shale extraction on environmental grounds, there is always the possibility of the EU creating regulations that would derail Poland’s ambitions to become a gas exporter. Poland like the Ukraine and European Union, is looking to break its dependency on Russian gas imports and slash its energy costs.

Coincidentally, as the Russian-backed Nord Stream pipeline was opening for business in September, Poland’s Deputy Treasury Minister, Mikolaj Budzanowksi, was insisting before an economic forum in Krynica in the south of the country that special legislation controlling shale gas exploitation was unnecessary as sufficient environmental regulations already existed under EU law.

It is no wonder Budzanowski and his government are sensitive towards an EU thwarting his government’s aim to avail itself of around 200 Tcf of shale gas – equivalent to 300 years of domestic consumption – at present the largest shale gas resource known in Europe. As PM Donald Tusk has pointed out, shale gas represents the country’s “great chance” to turn Poland from an energy importer to one of the world’s leading exporters. With Poland’s election on October 9, Tusk’s ruling party has already dangled the carrot of a four-year deal that includes creating a special fund to pay future pensions from shale gas revenues. No surprise then that a rig belonging to PGNiG, Poland’s energy conglomerate torched the first gas flare at Lubocino in the north of the country.

But even Poland’s massive shale gas reserves are comparable to the 200 Tcf that the UK’s Cuadrilla claims are sitting under England’s north-western coastline. The UK too is currently a net importer of much of its natural gas as its North Sea reserves steadily diminish. With Cuadrilla’s assessment Britain will find itself with the equivalent of ‘another North Sea’ natural gas resource. With the British Government thus far quite clear that fracking poses no environmental or geological threat, the development of such a massive resource could yet make the UK once again self-reliant in natural gas for decades to come – slashing or ending current gas imports, including from Russia.

How the politics of shale gas plays in Brussels then is of no small consequence in the halls of the Kremlin. A Russian Government overly-dependent economically on foreign gas sales is only too aware of what the extensive development of shale gas in Western Europe will mean for its future balance of payments.

Polish gas self-reliance alone would seriously impact Russia’s gas export market. Add to that the prospective threat of greater UK and, longer-term, Ukrainian energy independence and the freeing up of LNG deliveries for other markets and the prospect for Russian gas exports look positively Siberian.

Of course, all of this is reckoning without the EU’s ever-demonstrable capacity for shooting itself in the economic foot. If the EU chooses to follow France’s lead on hydraulic fracking by imposing ‘death by a thousand regulations’, Europe’s shale gas revolution could be on hold indefinitely.

Left to market devices, the potential for Polish and Ukrainian, and the fast-tracking of other European shale gas reserves, could well undermine the power politics of Russian energy imperialism within less than ten years – at least as far as Europe is concerned. While the launch of the Nord Stream pipeline currently ensures Russian gas hegemony will hold sway for a few years yet, shale gas offers EU member states the very real prospect of much greater domestic energy security beyond that.

As Huge UK Shale Gas Play Could Split Coalition argues the case for the economics afforded by the shale gas revolution winning when it comes to power politics in Britain, so our money is on the economics of shale gas forcing a win in Brussels, too. With no economic respite in sight for Europe and its global economy-affecting Eurozone crisis, shale gas simply offers too great an economic windfall. An opportunity for Europe to achieve a greater degree of energy security while diversifying away from Russian gas dependency.

Even by the time of the centenary celebrations of the 1917 uprising, shale gas is likely to threaten Russia’s elites with a very different kind of revolution.

Energy Tribune, 7 October 2011