Generally when we talk about energy policy we mean decisions regarding industry regulations, subsidies, and reserves. Occasionally though new technologies in the energy sector can have far reaching consequences throughout the political world. An example is the seismic shift in Russian diplomatic strategy and options in just the past 2 years.
As has been mentioned in previous posts, advances in natural gas extraction, particularly horizontal drilling and hydraulic fracturing or “fracking” have vastly expanded the US’s established natural gas reserves:
“Proven U.S. reserves have risen to 245 trillion cubic feet in 2008 from 177 tcf in 2000, despite having produced nearly 165 tcf during those years,” says Daniel Yergin of Cambridge Energy Research Associates. “With more drilling experience, U.S. estimates are likely to rise dramatically in the next few years. At current levels of demand, the U.S. has about 90 years of proven and potential supply — a number that is bound to go up as more and more shale gas is found.”
At the same time, these massive gains have had a very different impact on the other side of the world. As recently as 2008 Russia’s long term international strategies assumed their position as an energy supplier, primarily due to their natural gas reserves. In fact, in 2005, during a dispute with the Ukraine over gas pricing, Russia flexed its political muscle by cutting off gas supplies to Western Europe. Additionally, in what many industry observers considered a first step towards an OPEC-like cartel, Russia joined with fellow gas exporters Algeria and Iran to open an international natural gas office. Exploration of the massive Shtockmann field under the Arctic ocean was predicated on a world market desperate for Russian national gas, especially in Western Europe and the US.
That has all changed now. The Shtockmann fields have been mothballed, partially due to the global economic downturn, but also due to the drying up of demand for Russian gas. The US, who in 2003 was hearing warnings of domestic natural gas running out, is now poised to become self-sufficient on natural gas, and potentially start exporting. With the glut of natural gas on the global market today, Russia’s clout in the energy sector has waned, along with the political power that came with it.
At this point it’s unclear what the eventual political fallout of Russia’s diminished influence will be. However, there could be a silver lining, as the Russian economy may be forced to diversify away from the energy sector, resulting in a more stable and modern economic base. Which, in the long term, may be far more beneficial than the dominance of a being a major natural gas supplier.
The statements of natural gas reflect the huge supply of natural gas the world currently possesses; however, this is simply a function of time until natural gas prices will increase and Russia’s political influence will grow as the price increases since price is a reflection of scarcity. In Europe, Russia is the main supplier of natural gas, so even though Russia’s influence in the natural gas market may have been diminished with the price decrease, but Russia is still a strong player in this regional arena. As a direct result, Europe is watching the relationship between the Ukraine and Russia with particular interest due to the fact that the main supply pipelines for Europe flow through the Ukraine. While the Ukrainians recently elected a new leader, we have yet to see how this relationship will play out over time.