The potential of shale gas to alter the geopolitical landscape of energy is becoming too delicious to ignore. The recent report by researchers from the James A. Baker III Institute for Public Policy at Rice University determines that Russia will become a shriveled supplier to the European market by 2040. Russian exports will only comprise 13% of the European gas mix, compared to 27% in 2009. The dramatic impact, as determined by the researchers, will be the scrapping of South Stream. Europe will thwart Russia’s energy weapon by utilizing the increased liquidity in the European and global gas market. The findings suggest that the overall impact on Europe, of exploited shale gas plays, will be a more secure and more US orientated Europe.
First, it must be stated that the authors do a robust job of developing a global model that accounts for the impact of gas extracted from shale formations. The model and the scenarios they develop do well to demonstrate the impact that recent interest into shale gas can have over the long term. In addition, expanding the analysis to consider the geopolitical ramifications is commendable. However, despite using a robust model that can adjust for regional differences, they fail to be more effective at setting up the scenarios and to account for present and future regional market and infrastructure conditions. This failure leads to wrong assumptions that may influence US foreign policy in relation to promoting shale gas technology and undermines support to the Nabucco gas pipeline project.
For this short analysis I’ll state there is a significant methodological problem that skews how shale gas will liberate ‘Europe’ from the powerful clutches of Russia, thus enabling the Europeans to become more friendly with US foreign policy.
There are three scenarios the researchers provide that ‘demonstrate’ the impact of shale gas on the geopolitics of energy. In my own words these are:
- Everything global, shale gas is exploited from all countries globally
- Life in 2005, US shale from 2005 discoveries is used and no shale gas exploited outside the US
- Limited US/Everything global, US environmental regional restrictions limit US output
Developing US foreign policy advice based on these limited and constrained scenarios only extends the distorted/neglected picture that US policy makers have on Europe, and more specifically Central Eastern Europe (CEE) and South East Europe (SEE). This is where my criticism lies. If the researchers are able to account for regional variations in the US, then surely, they can also develop a scenario where regional variations in Europe are accounted for. Painting Europe with a single brush obscures regional variations. In addition, a more limited global output of shale gas should be considered in an additional scenario, as this is certainly more realistic than the first two scenarios.
The high reliance of CEE countries on Russian oil and gas supplies means defining a single European market is deeply problematic. (This reliance does not exist in Western Europe). The future does indicate the integration of the European energy network along with gas diversification through LNG. These aspects will increase security of supply in the CEE/SEE region. However, they do not exclude the need for Nabucco, as this provides another avenue for energy diversification. The authors do not present these regional variations and dependency in Europe. The extremely high gas dependency of Hungary, Bulgaria and even Poland on Russia should not be mixed with Western European countries’ ability to tap other pipelines for their sources.
Regional variation is important to consider. Nabucco is primary meant to increase the gas diversification in the CEE/SEE region – which is highly reliant on Russian gas. Therefore, if the model can account for regional US variations it should also be able to provide a scenario that accounts for European variability and the impact shale gas will have within the CEE/SEE. This would be extremely useful to have and provide a more accurate picture of the future geopolitics of energy that weighs heavily on these regions.
Shale gas is no panacea for future energy developments, as I have written before. The conclusions in this report provide some good insight into what could happen with shale gas and its global impact. However, while the authors emphasis the benefits the US can incur by the spread of the US technology, their findings are limited by neglecting more effective regional analysis in Europe and globally. More effective policy advice could be given by accounting for regional variations, particularly over Europe’s Southern Gas Corridor and the future gas relations with Russia.
Postscript: for a longer and more developed review of the study, please visit Natural Gas for Europe, where I published a more in depth assessment of the report.