U.S. shale is already undermining Russia, and the trend is only beginning. Forget the shale boom’s culpability in plunging oil prices and the toll that’s taking on Russia’s ability to balance its budget (well, maybe don’t forget that, but just set that aside for now)—fracking is also readying a glut of natural gas for the international market. As Wenyuan Qiu writes for the Moscow Times, this new North American supply undercuts Russia’s considerable energy clout in Europe:
In the coming years, Russia’s export volumes will remain high, even as its position in the European energy markets erodes. Often, discussion of the shale revolution’s impact on Russia focuses on the prospect of American LNG displacing gas flowing through Russia’s transcontinental pipelines.Such analysis is misleading. Increasing global supplies damage Russian interests. It is important to remember that, as recently as 2005, projections favored the U.S. to become the largest net buyer of natural gas in the world. But in the years since, domestic production rose 34 percent, making the country functionally independent of offshore suppliers. […][A]ny significant LNG activity will materially benefit Europe at Russia’s expense. As gas tankers journey across oceans, global markets become more integrated, lowering price differentials among regions — giving buyers greater choice.
It’s important to qualify this LNG ebullience by saying that infrastructure demands mean that in the near-term, Europe will remain very dependent on Russia for its gas needs. It takes time to build out the export terminals in America necessary to cool natural gas into its more shippable liquid form, and of course on the other end Europe needs to build out its own import terminals to regassify shipment.Then, too, there’s the high price Europe will likely have to pay for this LNG privilege. LNG sells at quite a high premium in Asian markets these days, in large part thanks to Japan’s decision to shut down its nuclear reactors in the wake of the 2011 Fukushima disaster, and LNG exporters are going to ship their wares where they can fetch the highest price. Europe’s economies aren’t exactly thriving these days, which won’t make a transition away from Russian gas any easier.That said, the cornerstone of energy security is diversification, and when it comes to Europe’s outlook, diversifying away from a supplier that has a long history of using its energy exports as bullying tools is generally a smart bet.U.S. aid plus tanks and missiles blocked Moscow’s attempt to subjugate Europe after World War II. Will American gas exports do the job this time? Frack faster, folks. Putin knows that time isn’t on his side and is moving now to make gains while he still can.