Dominating the EU Energy Market
"This is where everything is being turned on its head. Their days of dominating the European gas markets are gone."
Fiona Hill, Russia expert, Brookings Institute, Washington
Russia could be happier about the new gas extraction technology that it speaks of disparagingly as being bad news for the environment and just incidentally on their bottom line. Bad news for the present, on both counts, but at some time in the near future fracking will be of great use to Russia, just as it has freed the United States from its dependence on questionable sources for gas energy.
Hydraulic fracturing is transforming world energy markets in a manner unforeseen just a very short while ago. Think back to the not-so-very-distant when Russia pulled energy rank on Europe, when in 2009, in a dispute with Ukraine over price and payment, Russia withheld gas shipments during the winter months when heating was a high necessity, causing European countries no end of frenzied replacement searches.
The new American confidence in capability to extract its huge gas deposits hitherto seen as impractical have suddenly become available in lock-stop with drilling advances. Vast reserves of gas deep in shale rock, like the Marcellus formation in Pennsylvania and the Barnett shale in Texas are now readily extractable. The U.S. is not after all, running out of natural gas, despite experts' past warning.
And natural gas, now in extractable abundance, has fallen in price. Where Russia has been charging about $10 per unit to its clients in Europe and other countries, the price at the present time in the U.S. is more like $3 for the same amount. America is becoming self-sufficient, and gas imports from Russia will no longer be required.
Gazprom, as a result has shelved its plans on developing a new Arctic gas field. It can no longer justify the investment. Profits have dropped by almost 25%, and that's painfully unanticipated. The issue has even gained prominence in the current U.S. election campaign, with Republican aspirant Mitt Romney claiming he "will pursue policies that work to decrease the reliance of European nations on Russian sources of energy".
As for the incumbent, President Barack Obama boasts that the U.S. can "develop a 100-year supply of natural gas that's right beneath our feet", having the result that would "cut our oil imports in half by 2020 and support more than 600,000 new jobs in natural gas alone". Now that's a winning argument; two issues of primary importance to the American electorate; jobs and energy-security, and here's the solution to both.
Even Poland's Ministry of the Environment has got into the act, writing that "a increased production of natural gas from shale formations in Europe will limit the import via pipelines fromAlgeria and Russia". No wonder Russia is feeling a little glum and unappreciated about it all. Viewing the near future based on the current situation, it sees its income sharply declining.
Undaunted, however - or simply putting a brave face on the inevitable - Gazprom's top executive expresses dismissiveness of U.S. fuels trickling through to Europe on any impressive scale. "Although we heard that the motive of these activities was to decrease dependence of certain countries on Gazprom gas, the end results of these efforts will be utterly favourable to us.
"The reason for remaining tranquil is that we do not expect the currently abnormally low prices in the U.S.A. to last for long." Russia's vast reserves will always be there for exploitation. If and as is inevitable, the market for natural gas expands, Russia will have no lack of customers. And sniff-sniff, Gazprom has faith in natural gas as a more environmentally friendly energy source than other fossil fuels.
Who might have imagined that Russia's state-owned and -operated energy resource extraction and export companies had such a great philosophical investment in environmental correctness?
Labels: Economy, Energy, Marketing, Natural Resources, Russia, United States
posted by Pieface @ Tuesday, October 02, 2012
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