The start of the US/Russia – CEE/SEE geopolitical Gas War

Has the fight over Central Eastern and South East European energy (in)dependence taken on a new form? The long established dependency of countries in the CEE/SEE region on Russian oil and gas influences and shapes the geopolitics in the region. The push by Western European energy firms, and EU rules pulls the region in another direction. Now, the emergence of shale gas may be adding a third, and destabilizing element, to the shaky balance the CEE/SEE region must balance.

Will the French be opposing CEE/SEE shale gas? Why not if it undermines their regional investments.

The geographic energy network of the CEE and SEE region that was built during the Communist period essentially tied the region to the energy resources of the Soviet Union. The oil and gas pipelines, emanate from the heartland of Russia (yes, I’m refering to the Halford Mackinder Heartland theory). This dependency is most notable now in the post-Soviet environment in the CEE/SEE region with the on-going struggle for energy diversification in these countries. The struggle over the EU backed Nabucco and the Russian backed South Stream, means CEE/SEE countries must support both projects, even if both projects are not economically justifiable.

Enter the US Government and private energy companies, which hold the technological keys to fracturing the geology of the CEE/SEE region. During and after the Cold War US relations with the region were focused on military aspects and the thwarting of a strong Russia and the maintenance of Russian influence. The US missile defense shield could be viewed as much a product of defense, as a means to engage the countries in the CEE/SEE region. Now it appears the concepts and the technology for missile defense have run their course, with limited deployment of facilities on the ground. The emergence now of shale gas provides a new avenue for the US to seek to engage in the CEE/SEE region.

The release this year of a report on the global potential of shale gas considers the CEE region as holding large potential. The report by the United States Energy Information Administration finds shale formations exists in Poland with a high probability in Bulgaria, Hungary, Romania and Slovakia. The countries that are highly dependent on Russian gas also have the potential to significantly reduce their reliance on Russian sourced gas. The later release of the Baker study, demonstrates the significant potential that shale gas can play in liberating Europe from Russian gas depedency (however, as I argue this may not be the case). The US Government and US oil and gas companies now see significant export opportunities that insert the US Government into the energy mix in the CEE/SEE.

From the American perspective, the entrance of US companies into the extraction of gas will reduce Russian influence in the region and allow US technology to be exported. (It has to be remarked that while other countries see the future in renewable energy generation and exporting this technology, it is the US that seeks to extend the reliance on carbon based energy.) However, the insertion of the US and its interests in the CEE/SEE energy mix brings further tumultuous times. This is not to say that there isn’t a place for shale gas technology, but there now has emerged a significant political and social discourse around the technology that Russia will exploit and ultimately win.

The Baker study has an important consideration built into the model. The environmental opposition and possible restriction in the US Northeast. The environmental debate that has taken root in the US is a ground level one that has taken hold and has made considerable in-roads in the political sphere. This same support can already be discerned in the CEE/SEE region.

The presidential candidate of the opposition Bulgarian Socialist Party would initiate a national referendum on shale gas drilling and production in Bulgaria.

“There is no reason that can justify the use of technologies dangerous to people’s health and life. Bulgaria’s energy dependence should not be guaranteed with the use of such technologies, which are a threat to environment and citizens”, said Ivaylo Kalfin.

“It should be guaranteed by building the gas pipelines planned to cross Bulgaria, South Stream and Nabucco and interconnections with neighboring countries which are financed under EU programs,” said Kalfin, as reported by FOCUS News Agency. (source)

This is not to say that the political parties or its candidates are in the pocket of the Russian gas companies/government. But there is no doubt there is room for the Russians to support opposition to shale gas. It is a difficult line the opponents of shale gas must address, but no doubt the resources of the opposition will grow because of the resistance to the US technology. If opposition is so fierce and provides strong political opposition, like in the US, why not in the CEE/SEE region, where there is a large third party that is ready to support the opposition?

Will shale gas be the key for Russian political involvement in its old backyard?

 

The European companies themselves, that are building Nabucco (and South Stream) will be joining the debate. Those companies that don’t have access to the US fracting technology, will be financing environmental opposition movements by social and political groups. It can certainly be viewed that the weak and under financed social and political groups will be more than willing to accept some additional funds.

The US EIA and the Baker study both do a good job of identifying the potential and the impact that shale gas can have on the CEE/SEE region – but from a technical and theoretical perspective (for the Baker study the authors plan to examine some of these local aspects in the future). While the Baker study seeks to address the geopolitical aspects of shale gas and the impact on the Southern Corridor, it only alters slightly the upstream considerations of Nabucco and discounts South Stream. But since South Stream is (I believe) being built by Russian business standards – it doesn’t have to be profitable. It is a political snake and needs to be assessed as one. It can only be hoped that the US Government and its businesses begin to see the budding local and national opposition that shale gas technology will face in the CEE/SEE region.

The high dependency on Russian oil and gas and the political maneuvering means that altering supply sources is fraught with unexpected political and business challenges. If the Russians are ready to build South Stream, and even go to the effort of building the political and economic support for it – all in an attempt to undermine Nabucco, you can be sure they will deploy an equally robust opposition to the extraction of shale gas in the CEE/SEE region. One doesn’t even need to crunch the numbers to imagine how much more profitable it will be to financially support local and national groups opposed to shale gas. The US Government and its companies have entered the geopolitical energy game in CEE/SEE region. Grab a seat and let’s see how this all plays out. The fight over Nabucco will just become a side game.