The global distribution of recoverable energy resources and the enormous political power they bestow are undergoing the most radical shift since the energy crisis of the 1970s. Since that fateful decade, the world has been divided between many consumers and a few large suppliers: the Persian Gulf states, Russia, Venezuela, Indonesia, and Nigeria, later followed by smaller exporters like Mexico, Norway, and a few others. The large suppliers acquired political power from their energy wealth, and that power has grown since energy prices began their relentless climb in the new century.
This political power has expressed itself in several ways. First, the governments of these exporters have run energy-fueled budget surpluses, releasing them from the need to rely on taxation to pay for their operations and, in the case of non-democratic countries, from having to obtain the consent of the governed to be taxed. Second, the oil revenues have allowed non-democratic ruling elites to buy the loyalty of significant and powerful sectors of their populations with handouts and patronage, preventing alternative elites and middle classes from emerging from other sectors of their economies. Third, the same money has given petrostate regimes the economic muscle to project power internationally. Oil states have used their budgetary overflows to finance their foreign policies and, by using monopoly power and discriminatory pricing policies, to reward energy-consuming countries that please them and punish those that do not. International energy importers have had to pay careful attention to the policies, interests, and requests of the energy exporters.1
All this is now coming to an end. The main reason is that new “unconventional” energy resources in shale formations—shale gas, tight oil, and coal-bed methane—can now be exploited economically and on a large scale for the first time in history. The game-changing technologies that came together over the past few years—hydraulic fracturing, horizontal drilling, and computerized sonar seismic imaging—have made the commercial exploitation of unconventional energy resources increasingly cheap. This tectonic shift is about more than just gas (which in the United States is a fifth the price of just five years ago); these new technologies have since been applied successfully to extract shale “tight” oil as well.
Currently, only three countries—the United States (where the technological innovations began), Canada, and Australia—are exploiting these technologies and unconventional resources commercially. Many other countries are lining up to reproduce the success of the shale revolution in North America. Each geological formation has a unique structure, so there is no guarantee that technologies which worked well in North America will succeed elsewhere. But it would be strange indeed if these technologies turned out to be technologically effective and commercially viable only in North America and Australia. There is therefore a reasonable expectation that supply of energy will expand and that the price will fall and remain low until these finite resources are exhausted—at least a few decades off, and probably considerably longer than that.
It’s also likely, then, that the distribution of energy resources in the world, and the political power that comes with them, will be spread more evenly across the globe. Most nations will have some domestic resources, and most of those needing to import will be able to buy from regional suppliers. The age of global mega-exporters will end as early as 2020, and a golden century of gas will commence.
Most governments are acutely aware of these trends. They know that a new international political power field is emerging, and they recognize that their own behavior has the potential to alter the resulting matrix, at least to some extent. I offer a global overview that takes into account not just energy economics but also the political passions and social factors that inevitably shape decision-making at the national level.
The Conventional Producers
The relevant groups in relation to all energy resources, conventional and unconventional alike, are composed of producers and consumers. Current major conventional natural gas producers include Russia, Qatar, Iran, and Norway. The major oil producers are OPEC (most significantly the Persian Gulf countries), Venezuela, Nigeria, and Russia. The current major consumers of energy that do not have sufficient resources of their own include virtually all of the advanced industrial countries in East Asia and Europe. Though there is a global market for oil that minimizes regional price differences, for natural gas those differences can be extreme. The price in East Asia can be as much as seven times the price in North America.
The countries that pay the most (East Asia and the European countries dependent on Russian supplies) have particular interests in reducing their costs and diversifying their suppliers. They therefore have significant overlapping interests with the major new producers of unconventional energy (the United States, Canada, and Australia) and with potentially new producer countries with major technically (though not necessarily commercially) recoverable deposits: China, Argentina, Indonesia, and South Africa, and, within Europe, Poland, Ukraine, and France.2 (Some countries, like Russia and Norway, are major exporters of conventional oil and gas but also have major deposits of unconventional energy. Such countries’ interests align with the group of current producers because they have little to gain from exploiting their unconventional resources while they retain more conventional resources than they need.)
The economic and political interest of the current major energy producers is to prevent or, failing that, limit, disrupt, or delay the spread of technologies necessary for the exploration and exploitation of unconventional energy, most notably hydraulic fracturing. Regimes most dependent on income from exporting energy for buying the loyalty of the security services, supplying patronage to elite members, and financing the general welfare to keep their subjects quiet would sell less energy for lower prices. But at a certain point revenue loss risks regime destabilization. The Soviet Union, for example, collapsed during an era of low energy prices, as did Yeltsin’s presidency in Russia.
Energy monopolies, like monopolies in general, can try to buy out the competition, dissuade competitors from entering the market, erect political and legal barriers to entry to the market, or, if all else fails, reduce prices sufficiently to drive competitors out of business. Exxon’s decision to exit Poland happened at the same time it received extensive concessions in Russia. Some analysts have connected the two decisions. Russian financial support for anti-fracking demonstrators in Bulgaria and activists elsewhere in Europe has also been alleged, and the United Arab Emirates invested in the production of the anti-fracking movie Promised Land. Russia offered to buy new underwater energy sources in the Mediterranean to preserve its dominant market share.
In non-democratic countries, however, the interests of the political elite are not well-aligned with the national interest or commonweal. One of Russia’s totalitarian legacies is dominance by a single, externally unified elite in all institutions and walks of life. The Russian state, the energy monopolies (Gazprom and Rosneft), and the Russian political, social, and economic elite are indistinguishable: Most of the Russian government’s income is from energy exports. Gazprom makes unprofitable decisions in the interest of the Russian state. The higher management of the energy monopolies is indistinguishable from the leadership of the Russian state and its Secret Service. Still, the interest of the elite in self-enrichment trumps the economic interests of the companies and the interest of the state in balancing its budget. Policies that are in the interest of the elite, like building and extending unprofitable pipelines, may be presented as being in the geopolitical interest of the state, though in truth they are really designed just to generate large projects so that the elite can siphon off funds.
Wishful thinking can be a powerful passion for the major energy producers. Gazprom in particular has been in denial about the economic viability of unconventional energy sources, as has OPEC. Consequently, Gazprom has not prepared alternatives to its current business model; in other words, it is not preparing for the eventual end of its virtual monopoly over the European market. It has not only denied the economic viability of the unconventional energy sector, it has also not prepared for the current decline in European demand for Russian natural gas as Europeans switch to cheap coal from the United States for power production and import liquefied natural gas from Qatar. In denial of changing circumstances, Gazprom has been investing in pipelines to deliver gas to economically troubled Southern Europe that are not likely to ever become profitable.3
Russia’s current elite reaction to the obvious failures of wishful thinking is to further centralize power. Its Communist-era, habitual reaction to any crisis is to create a monopoly. Gazprom’s inflexibility and its inability to innovate and adapt to changing circumstances flow from its status as a state-guaranteed monopoly. A rational reaction to this failure would have been to break Gazprom into smaller, more agile units better able to compete in more open Russian natural gas production and delivery markets. The actual direction of Russian policies has been the opposite, toward the absorption of Gazprom into Rosneft, Russia’s oil monopoly, to recreate a super-monopoly akin to the old Soviet Ministry of Energy. This is bound to be disastrous in the longer run for Russian national interests, but not for the short-run interests of its kleptocratic elite.
The Unconventional Producers
The United States is by far the largest, most technologically advanced and politically significant producer of unconventional energy. Once a major importer of all kinds of energy, the United States has become self-sufficient in natural gas. Expanding domestic production of tight oil is also quickly reducing U.S. oil imports. The United States may well gain energy self-sufficiency by the end of the decade, which will have a major impact on the U.S. balance of payments, since about half of its current trade imbalance is from energy imports.
The United States is also becoming an energy exporter. As natural gas replaces coal in the U.S. energy mix, surplus coal is being exported, most notably to Europe. Once export licenses are granted, U.S. natural gas companies can also export liquefied natural gas to countries where it is now far more expensive. Cheaper natural gas in the United States also makes chemical industries that use gas as feedstock competitive globally because the cost of their raw materials in the United States is a fraction of their costs elsewhere.
An energy-independent United States will have less political interest in energy exporters than has been the case for the past half century, unless those countries also export less useful domestic products like terrorism and instability. Since there is a global market for oil, a major disruption to global supply will raise prices also in an energy-self-sufficient United States, but that poses an economic rather than a political or conventional national security problem. This matters enormously, since national policy will not need to concern itself as much with supply interdictions or disruptions in a world of more diverse suppliers where it is self-sufficient. That directly affects a major aspect of U.S. defense policy—namely, keeping supply lanes open and free from threat of interdiction.
Like all exporting countries, the United States has a long-standing interest in freer markets, this time both for energy as a commodity and as an industry that explores and exploits energy resources globally. It has a particularly heightened interest in lifting barriers to international investment and exploration for energy, since its energy companies have an enormous competitive advantage in developing unconventional energy resources. Horizontal drilling and multi-stage hydraulic fracturing are understood in principle elsewhere, but only a few non-American companies can replicate them commercially. Computerized sonar seismic modeling of the earth’s crust reduces the costs of exploration by suggesting the most probable sweet spots for drilling. The development of the algorithms that underlie seismic modeling requires repeated testing against empirical evidence gathered in the process of exploring for unconventional energy, and few non-American companies have access to such data. Long experience has enabled American companies to improve their technologies by modifying the chemical mix used in the hydraulic fracturing process, which now can be free of toxins, can exchang gels for water laced with chemicals, and can even use liquefied carbon dioxide to both sequester a greenhouse gas in the depths of the earth and push natural gas out of it. All this translates into lower costs, fewer risks, and better environmental standards.
The American small “wildcatter” companies that invented the relevant technologies were not always best at adhering to strict rules and regulations. But the larger, highly bureaucratic major energy companies are better at following complex regulations. Since these corporations pay American taxes and create American jobs, it is in America’s interest to facilitate the spread of unconventional global exploration against political and legal protectionist or environmentalist barriers. It is further in the U.S. interest to do so because, with the exception of Norway, none of the major conventional energy exporting countries shares democratic and liberal values with the United States, and many of them are its geopolitical rivals.
Clearly, the spread of technologies that produce more energy in more places reduces the price of energy and the incomes of major conventional energy producers, and it reduces the dependency of energy importers on those countries. The United States has a particular interest in helping friends and allies achieve, if not energy self-sufficiency, at least sufficient independence not to be bullied by energy exporters. For non-democratic energy producers, this may end up being a case of tough love, eventually releasing them from the “oil curse”, leaving them no option but to modernize, democratize, and diversify their economies if they wish to avoid collapse.
In the 1980s, before the construction of the Trans-Siberian gas pipeline from the Soviet Union to Western Europe, the Reagan Administration negotiated an anti-dependency compromise with its European allies, according to which the Europeans could not import more than a quarter of their gas supply from Russia. However, the new NATO and European Union member countries that had been trapped within the Soviet bloc before 1989 are much more dependent on Russia for energy today than America’s “old Europe” allies ever were during Cold War times. The cost of this dependency is not just higher prices but a political weakness that the United States has an interest in eliminating. The United States is therefore working to help former Soviet bloc countries from the Baltic States, through Poland, to Hungary, Bulgaria, and Romania to develop their own unconventional resources as an alternative to Russian imports.
Ukraine is not a member of NATO, but its geopolitical situation between Russia and the European Union has made it interesting. If Ukraine could gain energy independence from Russia by developing its own unconventional resources, it could become politically independent of Russia—assuming of course, at this time of writing, that Russia does not manage by one means or another to suborn the entire country beyond Crimea. Most of Ukraine’s unconventional energy resources are in the west of the country, geologically part of the Lublin Basin that stretches from eastern Poland. These regions are Ukrainian speaking, mostly Catholic, and were historically part of Austro-Hungarian Galicia when they experienced an early conventional energy boom (which forms the background to Bruno Schulz’s classical tales). If the result of the current crisis is the division of the country, the west may eventually achieve energy independence. The concessions for that part of the country were won by Chevron. In the short term, the pipeline flow from Russia to Europe can be reversed to supply Ukraine, or blocked to put pressure on Russia.
Similarly, Jordan and Turkey are the friendliest Islamic countries in the Middle East. Turkey depends on Iran and Russia for energy and Jordan on Saudi Arabia. Both countries, though, have unconventional resources that could be developed, and it is in America’s interest to help them do so, as well as facilitate future Israeli exports of natural gas to these countries from its newly discovered massive fields in the Mediterranean.
As a likely exporter of liquefied natural gas and of chemical products of natural gas, the United States has an economic interest in keeping global prices high. Still, U.S. policies are facilitating the spread of the unconventional energy technologies even to countries like China. The moral reasons for this generosity include environmental concerns: Natural gas is the least polluting of the fossil fuels. It emits only a third of the climate-changing pollutants of coal and a half of those of oil. Development and peace stimulate each other. The United States is helping India develop its unconventional energy resources partly because it will help reduce poverty and make India a stronger American partner. Since some unconventional resources span the India-Pakistan border area, it gives both countries an incentive to avoid conflict. Similarly, the Turkish deposits are in the southeastern Kurdish ethnic area. Sometimes positive-sum political arrangements trump narrow economic calculations.
Several related U.S. government programs have global scope for precisely such reasons. Scarce information about the extent of unconventional energy resources is a major constraint for governments that need to decide whether to invest in appropriate infrastructure and invite foreign bids for exploratory concessions. The same scarce information is a risk factor for potential investors in unconventional energy exploration and exploitation. By publishing informed assessments of global resources, the U.S. Energy Information Administration reduces risk and helps governments make informed decisions.
American states also have the most experience with regulating the extraction of unconventional energy resources and dealing with its environmental effects. The United States is therefore in a privileged position to offer advice about best regulatory practices. The implicit positive agenda of regulatory assistance is that, if properly regulated, the exploitation of unconventional energy using innovative technologies like hydraulic fracturing can be safe. This agenda accords with U.S. interests in assisting the global spread of unconventional energy—hence the State Department launched the Unconventional Gas Technical Engagement Program (UGTEP) in April 2010.
UGTEP’s aim, in its own words, is
to help countries seeking to utilize their unconventional natural gas resources to identify and develop them safely and economically. . . . The ultimate goals of UGTEP are to achieve greater energy security, meet environmental objectives, and further U.S. economic and commercial interests.
U.S. government agencies partnering with the Department of State under UGTEP include: USAID; the U.S. Geological Survey; the Department of Interior’s Bureau of Ocean Energy Management, Regulation, and Enforcement; the Department of Commerce’s Commercial Law Development Program; the EPA; and the Department of Energy’s Office of Fossil Energy.
The importance of the new U.S. energy diplomacy of the shale era was confirmed by the creation of the Bureau of Energy Resources, headed by Ambassador Carlos Pascual, in November 2011. Secretary of State Clinton affirmed the new emphasis on energy in American diplomacy in a speech at Georgetown University on October 18, 2012,and on June 25, 2013, President Obama announced a Climate Action Plan that emphasized unconventional energy and mentioned UGTEP by name.
In countries that receive priority, the United States, through UGTEP, is assisting in
shale gas resource assessments; technical guidance to evaluate the production capability, economics, and investment potential of shale gas resources; and workshops and seminars on technical, environmental, business, and regulatory challenges related to shale gas development. Engagement with non-priority countries focuses on regulatory policies and fiscal structures challenges.
In Asia, Indonesia and India are priority countries, as has been Burma following its liberalization. Since developing Asia receives most of its energy from the Middle East, greater self-reliance in countries like China and India means fewer imports from the Middle East.
Other Potential Unconventional Producers
China, in particular, is potentially one of the largest unconventional energy powers, with almost twice as much technically recoverable shale gas as the United States (1,115 to 665 trillion cubic feet) and 32 billion barrels of shale oil. Argentina has 802 trillion cubic feet of shale gas and 27 billion barrels of shale oil. Mexico has 545 trillion cubic feet of shale gas and 13 billion barrels of shale oil. South Africa has significant amounts of shale gas (390 trillion cubic feet), and Pakistan and Indonesia have nine and eight billion barrels of shale oil, respectively. Within Europe, three countries have sufficient technically recoverable resources to potentially become regional exporters: Poland, France, and Ukraine. (Current major producers of conventional gas and oil—Russia, Libya, Venezuela, and Algeria—also have substantial shale resources, but, as already suggested, as long as they have sufficient conventional resources that can be extracted cheaply, they do not need to invest in new technologies to extract new types of resources.)
The economic and political interests of these countries are to exploit these resources, but to do so requires advanced technologies and the human capital to go with them. They can either try to acquire or otherwise obtain the technologies, or bring in American companies with the know-how to begin explorations. One can imagine many mixed strategies. China has been acquiring small American energy and service companies that have mastered the technologies for extracting shale oil and gas. It can also attempt to reproduce these technologies, as it has been doing with other industrial processes. Other countries, however, lack the human, technological and industrial resources to reproduce the technologies and so are dependent on bringing in international American or other (Australian, British, or French) corporations. All these countries need additionally to build up infrastructure, including pipelines and storage facilities.
Several passions may intervene against these interests, however. Populism and protectionism may block foreign companies from accessing a domestic energy market, as in Mexico or possibly Argentina. Third World or post-colonial countries may resent the intrusion of international companies based in the home countries of their former colonizers. They may attempt to enforce protectionist energy policies that U.S. Undersecretary of State Robert Hormats has called “Green Mercantilism.”4 But since these countries lack the technical means to exploit or even to explore shale resources, protectionism will only keep the resources in the ground, where nobody can benefit from them.
In Mexico, American technologies will certainly work because Mexico has the same shale formations as those that continue north of the border in Texas. Still, legislation from the past gives the state-owned Pemex an absolute monopoly in Mexico. The Mexican government under President Enrique Peña Nieto is attempting to reform its energy laws to allow foreign companies to invest in and form joint ventures with Pemex, if not to finally privatize the “behemoth.” Colombia and Peru have already opened their energy markets. But nationalization, or the threat of nationalization, may deter otherwise interested companies in places like Argentina, Venezuela, or Bolivia. Companies ready to assume the risk may demand more favorable terms than they might otherwise get and would need to pay high insurance costs against nationalization. Consequently, the state’s share of the profits would be smaller.
As in Russia in recent years, strategies may be shaped by factors having nothing to do with rational policies on the national level. The predatory elites that Mancur Olson called “marauding bandits” (as opposed to stationary ones) may rush to “slaughter the goose that lays the golden eggs” after it lays a few eggs.5 They may wait until exploration concludes successfully and exploitation begins to impose onerous new taxes or to demand the creation of new partnerships or joint ventures at favorable terms to benefit themselves. Or they may cancel concessions and try to resell them once economically recoverable deposits are proved. Or they may try to nationalize the resources and produce them themselves. Western energy companies that have attempted to operate in Russia are familiar with all these tactics. Energy companies that are considering operating in Ukraine worry that such scenarios may be repeated there. One energy executive complained that each change of government in Ukraine (there have been five since independence) requires renegotiating contracts and concessions and generates new demands for personal commissions to politicians. This may either deter companies from competing for concessions or make the government share smaller to compensate for the risk.
In countries with a single dominant energy sector, like nuclear energy in France or coal mining in South Africa, the interests of that sector either in state subsidies or in employing a vast organized labor force may conflict with the national interest. Different legal regimes also affect the outcomes of conflict-of-interest issues between residents and local communities, on the one hand, and central governments and large energy companies, on the other. Whereas in the United States landowners own the mineral rights down to the center of the earth, elsewhere they own only rights to the surface soil, while the central government owns the mineral rights. Consequently, U.S. landowners and the local governments that tax them have a strong interest in cooperating with industry in exploiting unconventional energy and becoming rich, whereas elsewhere, local communities and landowners suffer from noise, heavy traffic, and the risk of adverse environmental effects without receiving any direct rewards or compensation for their trouble.
The NIMBY phenomenon may combine with political and ethnic tensions between the center and periphery when the political orientation or ethnic composition of the central government differs from that of the areas where the exploitation of unconventional energy sources should take place. For example, in Bulgaria the area richest in shale gas is populated by the Turkish minority. The central government could share royalties with the landowners and their communities or local governments. The British government offered recently a “sweetener” that provides local communities “at least £100,000 of benefits per ‘fracked’ well site during the exploration phase, and no less than one per cent of overall revenues.”6 There is nothing there for individual landowners, and the sweetener may not suffice to compensate local government, but it is a step in the right direction. Central governments, especially in autocratic political cultures, usually avoid offering sufficiently substantial royalties to incentivize local communities. They prefer to impose their interests against those of local communities, except when the resources happen to be at or next to the national center, in which case the central political elite itself becomes a NIMBY lobbying group. For example, the French government banned hydraulic fracturing only after it became public that exploration would take place within the Île de France region around Paris.
Property rights and royalties cannot explain all of the differences that exist between the unconventional energy policies of countries that deny mineral rights to landowners. Geopolitical factors explain the popular acceptance of unconventional energy in Poland, Ukraine, and the Baltic states. Passions, especially fear, play a role in some of the popular reactions to the new technologies as well. There is fear of polluting of ground water and from using large quantities of water for hydraulic fracturing, fear of earthquakes, and even fear of the earth collapsing altogether because of drilling deep in its crust.
Such fears can be based on rational risk assessment. If so, discussion can focus on well-casing, blowbacks, created water, and above all, of regulatory frameworks. But most public debates are not about risk assessments and management through regulations but about whether or not to ban unconventional technologies. Government technocrats and other technical experts have attempted to address fears on a rational, risk assessment, and management level, but in many countries people do not trust the experts. If for good reason or bad they do not trust elite assurances, no amount of detailed explanations of the technologies and their benefits can be convincing.
Two kind of distrust are relevant here. In countries that are or were totalitarian, authoritarian, or kleptocratic, political and economic elites have disregarded the interests and rights of their citizens for many years, including their right to live in a safe environment. Without institutions to protect those rights against predatory elites, Communist regimes habitually destroyed the environment and ignored the effects of pollution on the health of their subjects. In some post-Communist countries politicians are corrupt and do not expect to stay long in office. Against this background, it is understandable that citizens do not trust their political elites not to sell their environment and health to the highest bidder. The popular perception, true or not, is that the companies are greasing the hands of politicians. The corporate use of public relations firms only deepens popular suspicions. Many in post-Communist Europe believe that whoever pays for the services of a public relations company must have something to hide.
In a second group of societies, rifts have emerged between what some have called Promethean elites and precautionary publics.7 Until the 1990s, in countries like France and the United Kingdom, a non-political technocratic civil service lorded over policies about science and technology. A technocratic elite can make longer-term plans than politicians whose temporal horizons shift from one election to the next, and they can be more dispassionate than electorates in determining the public or national interest. However, when such an elite makes a mistake, it finds it very difficult to correct itself. It is much easier to close ranks and admit to no error. That describes what happened with the mad-cow disease crisis in Europe and the HIV-contaminated blood crisis in France.8 European technocratic elites still maintain a Promethean enlightenment ethos of belief in science and technology as human liberators, but precautionary populations fear their zeal. The result has been an absolutist application of the Precautionary Principle: No new technologies can be considered safe until so proven, a virtually impossible standard to meet.
This distrust in the assurances and promises of technocratic elites links issues like genetically modified foods and hydraulic fracturing. Though the two technologies have nothing to do with one another, European public discussions of them and the policy results are similar. Environmentalist groups and green politicians and parties represent European precautionary publics. Green groups have an interest in raising the fracking issue for purposes of organizational mobilization and fundraising, in the United States as well as Europe.
Putting the Coalitions Together
Amalgamating all the interest groups, two broad coalitions emerge: On one side, the current major producers, precautionary publics, and environmentalist groups oppose the exploration and exploitation of unconventional energy sources, or at the very least wish to delay it.9 On the other side, the United States, the unconventional energy-rich countries (that are not also rich in conventional resources), the international corporations that have the technological know-how and the Promethean technocratic elites support the technologies. The contested battlegrounds are countries with limited unconventional resources that promise not untold riches but partial independence and lower prices for gas; and countries with traditionally closed, protectionist energy market that nevertheless cannot develop their resources by themselves for lack of technological know-how.
This is the context within which U.S. and European policy can be judged. We have already noted U.S. initiatives, especially UGTEP. Unlike the United States, Europe does not have a unified energy policy. Nevertheless, the shale revolution has influenced diplomatic negotiations between the European Commission and Russia and the United States. Europe has become less dependent on Russian natural gas as an indirect result of the American shale revolution. The United States has been gradually shifting power generation from coal to gas, and has stopped importing LNG. Consequently, European countries have been able to buy cheap American coal for power generation and Qatari and Australian LNG originally designated for U.S. consumption. Armed with greater independence, the European Commission’s Energy and Competition directorates in Brussels have sued Gazprom for charging European countries different prices. It has also pressured it to reduce its prices and move from long-term contracts fixed to the price of oil to spot pricing.
LNG has been good to Europe, and various countries are building the infrastructure to import more. Europe wants more of a good thing, and the immediate future source for LNG is the United States. Currently, exports of LNG to countries that do not have a free-trade agreement with the United States require export licenses from the Department of Energy. If there were a free trade agreement between the United States and Europe, Europe could import unlimited quantities of LNG from the East Coast and the Gulf of Mexico. Such an agreement, the Trans-Atlantic Free Trade Agreement (TAFTA), or the Trans-Atlantic Trade and Investment Partnership (TTIP), is currently under negotiation.
There is no united European policy on unconventional energy. Russia hoped for a ban on the European level, but the United States worked to foil it in Brussels. Poland neutralized the attempts of the French Greens, and the European Commission itself has remained neutral. Each European country thus has its own policy about unconventional energy, and the policies can shift. France, the Czech Republic, the Netherlands, and Bulgaria have banned or imposed a moratorium on hydraulic fracturing.
The reasons differ from place to place. Netherlands has sufficient conventional resources. Ironically, in Bulgaria, the center-right government that banned hydraulic fracturing following demonstrations in Sofia fell because of similar demonstrations against the high costs of energy in Bulgaria, which paid the highest price of all to Gazprom. The current Bulgarian Socialist government is too close to Russia to consider revising the law and just received a 20 percent discount in the price of Russian gas as a reward for participation in the South Stream pipeline project.10
The United Kingdom and Romania reversed their moratoria policies with U.S. encouragement. Unless Poland’s so far disappointing geological fortunes are reversed, the United Kingdom, with its existing infrastructure for delivering natural gas from the North Sea, is likely to be the first European country to develop commercially its unconventional resources. It gets strong encouragement from the current government both in financial (low taxes) and political terms as it looks for new resources to replace the dwindling North Sea fields and for new industries to lift the economy from the recession. Romania, like the United Kingdom has a history of exploiting natural resources—albeit a more storied history. It has gone through several policy reversals under pressure from both Russia and the United States. For now, it seems positively disposed to exploit its unconventional energy potential.
European energy policies thus seem economically and environmentally inconsistent. On the one hand, Europe is buying more and more cheap American coal and less Russian natural gas for economic reasons. But coal is the most polluting fossil fuel. On the other hand, European states subsidize renewable energy that is clean but most expensive. The solar panels, wind turbines, and so on that generate renewable energy are mostly imported from China. The one thing in common for coal and renewable energy is that they both necessitate imports that worsen the European balance of trade.
Clearly, European countries have a strong interest in using their own natural resources and developing their own energy industries. The United Kingdom, Poland, and Romania are moving in that direction. To the extent they are successful, others are likely to follow suit. Europe’s “Promethean” elites may attempt to use free trade agreements and the international adjudication system to allow hydraulic fracturing while diverting political responsibility and liability away from themselves, as they have in comparable cases such as that of GMOs. A Transatlantic free trade agreement would usher in a golden age of natural gas in Europe, not just because it would allow the unhindered importation of American LNG but also because U.S. companies would be able to appeal bans or moratoria on hydraulic fracturing to supranational courts under the free-investment clauses in such a treaty. If successful, they could toast for their success in France with California wines and steaks made of beef fed by American genetically modified corn and soy.
Energy is literally power, and global energy-power dynamics are changing in ways that will affect not just economics but politics, strategy, alliances, legal frameworks, and domestic elite constellations in both democratic and autocratic polities. Nothing will be as it was for most of the past half century. Fortunately, the United States is in an excellent position in this onrushing future, but Europe (individual countries and the European Union as a whole, such as it is) is less well-situated, not for geological reasons but for political and social ones. China is positioned to prosper, but Russia, Saudi Arabia, and other export-dependent OPEC members are not. Indeed, as the poet said, “The first one now will later be last, and the times they are a-changin’.”
1Michael L. Ross, The Oil Curse: How Petroleum Wealth Shapes the Development of Nations (Princeton University Press, 2012).
2U.S. Energy Information Administration, Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 137 Countries Outside the United States (June 2013).
3Tucker, “Pipeline Wars or Pipe Dreams”, Fuelfix, June 21, 2013, and Edward Lucas, “Russia: Winning a Battle, Losing the War”, Center for European Policy Analysis, July 2, 2013.
4Hormats, “Why Global Energy Diplomacy Matters”, The Globalist, April 25, 2013.
5Olson, Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (Basic Books, 2000).
6UK Government, Shale gas: government unveils plan to kick start investment with generous new tax breaks, July 19, 2013.
7John Dryzek, Robert Goodin, Bernard Reber, Aviezer Tucker, “Promethean Elites Meet Precautionary Publics: The Case of GM Foods”, Science, Technology, & Human Values (2009), 263–88.
8Sheila Jasanoff, Designs on Nature: Science and Democracy in Europe and the United States (Princeton University Press, 2005).
9See Aviezer Tucker, “The New Power Map: World Politics After the Boom in Unconventional Energy”, Foreign Affairs, December 19, 2012, and Ladka Bauerova, “Chevron Draws Europe Towards Natural Gas Independence”, Bloomberg Businessweek, July 24, 2013.
10Margarita Assenova, “Bulgaria and Romania: Pursuing Energy Security in a Changing Environment”, Center for European Policy Analysis, July 2, 2013.