*UPDATE III* Shale Puts Russia, Saudis on the Defensive
Mere months after former and future Russian President Vladimir Putin publicly tried to undermine the safety of hydraulic fracturing and shale development as a whole, he has now changed his tune.
UPDATE III (4/19/2012, 9:34am ET): An article from Penn Energy’s Energy and Capital team has highlighted the changing dynamic of global oil and natural gas production, which also notes that state-run petroleum companies are showing increased interest in North American shale plays, specifically the technologies that have facilitated access to America’s immense, previously inaccessible reserves: hydraulic fracturing and horizontal drilling. Interestingly enough, one of the countries now looking at this technology is none other than Russia. It seems that when it comes to shale, Mr. Putin has moved from critical, to envious, to practical acceptance.
UPDATE II (4/12/2012, 12:25pm ET): Mere months after former and future Russian President Vladimir Putin publicly tried to undermine the safety of hydraulic fracturing and shale development as a whole, he has now changed his tune. As highlighted by Platts, UPI, and Bloomberg, Putin now acknowledges the game-changing nature of America’s development of natural gas from shale. More specifically, Putin believes that hydraulic fracturing and horizontal drilling in the United States “can seriously reshape the structure of hydrocarbons markets.” He also said that shale development will provide tough competition for his country as one of many “external shocks” to which Russia will have to respond, adding that this undermining of Russia’s hegemony in the global gas market is part of an “era of turbulence.”
It’s clear that shale development in the United States is altering the global energy space for the better, and even anti-shale heads of state — who, it’s worth noting, have deep financial interests in trying to upend such development — can no longer ignore it.
UPDATE (12/16/2011, 4:19pm ET): If there’s one thing autocrats don’t like, it’s competition, and the Wall Street Journal reports that Vladimir Putin is, indeed, feeling the pinch with respect to Russia’s (declining) energy hegemony. Apparently the Prime Minister is trying to learn all he can about hydraulic fracturing, the technology that is helping to loosen Russia’s grip on global natural gas markets, presumably so he can better campaign against it (though if he does take the time to learn the facts, he’ll discover that its alleged environmental impacts are dramatically overstated). After asking “What’s on Vladimir Putin’s mind?” the Journal gave, among others, this likely answer:
[P]erhaps he is worried about the impact of surging shale gas supply will have on state-owned gas giant Gazprom. It makes much of its revenues exporting gas to Europe, at prices linked to oil prices. If the U.S. were able to export gas to Europe, its market dominance could be eroded; Cheniere Energy recently signed a 20-year deal to supply gas to the U.K.’s BG Group. Europe, too, could eventually produce its own shale gas, particularly in Poland. The extra competition isn’t a great prospect for Gazprom – or Russian politicians, who rely on oil and gas tax revenues to balance the books.
—Original post from December 1, 2011—
The shale revolution is rapidly becoming global, but the Bear still refuses to be bullish on its prospects.
Most of us know about the enormous economic benefits being delivered to Americans every day thanks to the safe and responsible development of America’s shale resources. From creating jobs to reducing energy prices, and everything in between, expanded domestic production of natural gas and oil from shale has been one of the lone high notes in an otherwise bleak economic composition.
But there is another story unfolding about the shale revolution, one that’s been wildly unreported and yet one with enormous geopolitical implications: the weakening of Russia’s grip on the global natural gas market. We highlighted this phenomenon earlier this year when the Baker Institute released a study that found shale gas development in the United States and around the world could cut Russia’s market share in natural gas by more than half.
And according to the Wall Street Journal this week, Russia is starting to fight back, albeit with a hefty dose of debunked talking points about hydraulic fracturing contaminating water supplies:
Shale gas has revolutionized the gas business in the U.S., and industry experts and executives say the same could happen in Europe and Asia.
Russia, however, has repeatedly downplayed the role of shale gas and insisted it won’t hurt its lucrative model of extracting gas at deposits in West Siberia and pumping it through huge pipelines to consumers in Russia and Europe.
But in a sign the phenomenon is in fact being taken seriously, the board of directors at the world’s biggest gas producer, state-owned OAO Gazprom, this week highlighted environmental risks and the high costs of production in Europe.
“The production of shale gas is associated with significant environmental risks, in particular the hazard of surface and underground water contamination with chemicals applied in the production process,” Gazprom said in the statement following the board meeting.
Of course, such push back (which contradicts well-established facts about hydraulic fracturing) is not limited to the state-run gas company. At a recent event, Russia’s Prime Minister Vladimir Putin himself tried to undermine shale gas with his own environmental “assessment”:
Asked if development of shale gas resources threatened Russia’s dominance of Europe’s energy market, Mr Putin grabbed a notepad to draw diagrams of how “fracking” – the method used to extract such gas – could damage the environment.
Putin also allegedly said that where shale gas is extracted, “you will be sick” because production poses a “real threat to the environment.” He praised France for “recognizing” that link.
Hyperbolic rhetoric and cute drawings, however, aren’t Russia’s only strategies.
As the oil and gas market undergoes significant change (the United States is on track to beat its peak output of oil and natural gas by the end of this decade, and is also projected to become a net exporter of petroleum products by the end of this year), Russia is desperately looking for allies to help maintain its power. Last month, Putin announced that Russia will begin coordinating with OPEC, the organization that formed half a century ago in part to protect market share and control prices.
Russia and several OPEC countries also recently convened in Doha to discuss collaboration for natural gas pricing, a decision partially driven by growing global shale gas development, particularly in North America. As Platts points out, shale gas is “one of the major challenges facing the producers and exporters of conventional gas” present at the meeting.
The Saudis, meanwhile, are also viewing the shale revolution with concern, as the massive expansion of U.S. oil production in areas like the Bakken in North Dakota and the Eagle Ford in south Texas has reduced the need for imports from Saudi Arabia:
OPEC estimated in a recent report that global reserves of tight oil could be as high as 300 billion barrels, above Saudi Arabia’s conventional reserves of 260-billion barrels, which are currrently seen as the second-largest in the world after Venezuela.
Global output of non-conventional oil is set to rise 3.4 million bpd by 2015, still dominated by oil sands, to 5.8 million bpd by 2025 and to 8.4 million bpd by 2035 when tight oil would be playing a much bigger role. By 2035, the United States and Canada will still be dominating unconventional oil production with 6.6 million bpd, the group forecasts.
What’s the upshot here? Russia is scrambling to undermine the shale revolution, not only in its own back yard (Poland has enormous shale gas resources and is moving forward with development) but also throughout the world. If countries previously dependent on Russia or OPEC suddenly discover that they have more leverage over the prices these countries charge — or if they discover their own shale resources at home — the control once wielded by OPEC countries and the Russian Federation will be considerably reduced. And with that loss of power comes a considerable loss of public funding; the Russian government is heavily dependent upon oil and gas tax revenue (in 2008, one-third of Russia’s total government revenue came from oil and gas production), and in 2010 Saudi Arabia generated more than $180 billion in oil export revenues.
Creating jobs, growing the economy, reducing the deficit, and even weakening hostile regimes. Is there anything the shale revolution can’t do?
Fidel Castro Speaks: Opposes Shale Revolución
As you might recall, news reports over the past year have highlighted how once and future Russian president Vladimir Putin, a former KGB agent, is trying to undermine the development of oil and natural gas from shale, rightly regarding these massive new supplies of energy as a direct and growing threat to his hegemony in the region. And now it appears that the revolutionary offspring of the Soviet Union -- Fidel Castro's Cuba -- is also joining the ranks of opposition to shale development.
As you might recall, news reports over the past year have highlighted how once and future Russian president Vladimir Putin, a former KGB agent, is trying to undermine the development of oil and natural gas from shale, rightly regarding these massive new supplies of energy as a direct and growing threat to his hegemony in the region.
And now it appears that the revolutionary offspring of the Soviet Union — Fidel Castro’s Cuba — is also joining the ranks of opposition to shale development. Reuters reports that Castro, in a recent column that he penned over the holidays, suggests that shale development will lead to an “inexorable march toward the abyss.” The Cuban dictator arrived at this position after digesting what we here in the States refer to as “debunked talking points.” From the Reuters piece:
Shale gas production is criticized in some quarters because it requires extensive “fracking,” which uses water, sand and chemicals to fracture the rock where the gas is trapped to allow it to flow out of the well. Fracking, opponents say, contaminates groundwater sources and can cause other problems.
Castro sided with the critics, quoting reports on the negative effects of fracking and research that said shale gas emits more greenhouse gases than gas produced from conventional wells.
Statist regimes are known for their isolation and reluctance to accept facts and data from other parts of the world, especially information that would undermine the regime’s ideological, often plutocratic bent. In this case, though, it appears the Bearded One is involved in a little bit of cherry-picking — grabbing talking points off opposition websites without taking the time to research the issue the whole way through.
To wit: Castro makes reference in his column to the GHG profile of the development of energy from shale, a direct reference to a study issued last year by the Park Foundation-funded “scientists” at Cornell — a paper that has been debunked more thoroughly than geocentricity. Had Castro done his homework, he would’ve known that report rests on such shoddy ground that the authors’ own colleagues took issue with its findings, noting that Howarth and Ingraffea use “implausibly high leakage rates” and “dismiss the impact of existing technology” for reducing emissions.
Castro also expresses concern about water contamination from oil and natural exploration — perhaps forgetting that his country has leased thousands of onshore acres out to foreign companies over the past five years to help the regime develop its own resources domestically. But the facts clearly show that hydraulic fracturing is safe and does not present a credible risk for water contamination. Regulators from nearly a dozen states have affirmed the safety of hydraulic fracturing, as has the U.S. Environmental Protection Agency on numerous occasions.
For nearly forty years, Cuba and the Soviet Union joined hands across the Atlantic to oppose western civilization. The private sector became the bête noire for both countries, with Cuba and the USSR consistently looking for evidence that would undermine economic freedom (they failed). But with the fall of the Soviet Union, the legitimacy of communism also crumbled under the weight of a superior economic model: the market economy. The ideological link between Russia and communist Cuba was strained, if not completely severed.
But shale development represents a new bond between Cuba and Russia, a source of joint opposition that is, once again, premised on nothing more than flawed logic and a commitment to undermining a superior (and safer) economic system.
As they say, the more things change the more they stay the same.
- EID Blog: Shale Puts Russia, Saudis on the Defensive
- Reuters: “Fidel Castro says world marching into abyss with shale gas” (Jan. 5, 2012)
- WSJ: “Russia Sounds Alarm on Shale Gas” (Nov. 30, 2011)
- EID Fact Check: Five Things to Know about the Cornell Shale Study