Energy as a Weapon

BERLIN/WASHINGTON | | usarussische-foederation

BERLIN/WASHINGTON (Own report) - The German Chancellor is suggesting that the EU should take a "new look at its energy policy" as a whole. As Angela Merkel confirmed last week, several EU countries are at least partially "very highly dependent" on "the supply of raw materials from Russia." Spurred on by the Ukrainian crisis, Berlin and Brussels could, however, in the long run, seek to liberate themselves. Merkel made her remarks following talks with Canada's Prime Minister, who is considering the diversification of his country's energy exports and does not exclude exporting natural gas to Europe. This, along with gas, which is extracted in the USA by the controversial "fracking" technique and should be exportable soon, could shake Russia's strong position on the European gas market. Massive price cuts could result, forcing Moscow to drastically cut its budget, according to US experts. Whether Putin could politically survive such measures is unknown. In Berlin the debate continues over the new perspective of transatlantic energy. Representatives from US-oriented sectors are in favor and those from energy companies doing business with Russia and from the SPD, are opposed.

North American Natural Gas

The German Chancellor is suggesting that the EU should take a "new look at its energy policy" as a whole. Angela Merkel explained, after meeting last week with the Prime Minister of Canada, Stephen Harper, that in Europe, there is "at least partially (...) a very high dependence on the supply of natural resources from Russia." This applies less to Germany, which "relies only for 35 percent on Russian gas." In fact, Bulgaria and Hungary are much more dependent on Russian energy sources. Still, it is expected that Brussels will take measures for "a long-term reorientation," in which Russia's importance for the EU's energy supply can be reduced, explained Merkel. As the Canadian Prime Minister confirmed in Berlin, his government seeks to "diversify" Canadian energy exports, which are currently almost exclusively destined for the United States. Gas exports to Europe are a possibility. Gas deliveries from the USA to the EU are also in consideration since some time.[1]

The Fracking Boom

The energy policy reorientation, currently discussed in Berlin and Brussels, is more comprehensive. This is caused by major upheavals taking place on the world's oil and gas markets. Over the past few years, also provoked by the increase in oil prices, oil can profitably be extracted from sources formerly considered uneconomical or unconventional, such as tar sands. Canada, whose Alberta province disposes of huge deposits of tar sands, is among the main beneficiaries. However, the United States has entered a major shale gas boom, from deposits that can only be obtained through the highly toxic - and controversial - "fracking" technique ("hydraulic fracturing"). Between 2007 and 2012, US shale gas production expanded by more than 50 percent annually, while the declining total oil production from 2008 to 2013 has been rising by 50 percent, thanks to fracking. Despite the fact that fracking is still controversial and that it is unsure whether the new resources can hold out over a longer period, the USA has surpassed Russia as the world's largest energy producer in 2013. It is estimated that by 2015, the USA could even surpass Saudi Arabia as the world's largest crude oil producer.

The Transatlantic Block

If this trend holds, this could engender extensive global transformations. The radically reduced natural gas prices in the United States, has created advantages for the US industry against its global rivals. In German business circles, speculations about whether it would not be more profitable to relocate their sites to the USA, because of low gas costs, are converging with the current negotiations on the planned Transatlantic Trade and Investment Partnership (TTIP), which aims at a tight consolidation of a transatlantic economic block against rivals around the world - not least of all in China. Experts are also predicting enormous consequences for relations to Russia, currently the main focus of the debate. Two members of the National Security Council in the George W. Bush administration - the era when fracking was massively promoted - analyzed the "geopolitical consequences of the shale gas revolution." This analysis was published in the latest issue of the US foreign policy bi-monthly "Foreign Affairs." The article contends that the top winner will be the USA, with other subordinate winners being Canada and possibly China. However, there will also be losers, such as the oil and gas powers in the Golf states. But most probably, the main loser will be Russia.[2]

Russia, the Main Loser

The two ex-Bush administration National Security Council members contend that, thanks to fracking, the US could begin exporting large amounts of gas in just a few years. This will not be able to completely force Russian gas from the European market, but new North American suppliers can force down prices. If Russia cannot compete with the prices, a destabilization of its political system is not out of the question. In fact, about half of Moscow's state budget is financed from energy export receipts, according to "Foreign Affairs." Therefore, a reduction in these receipts could "force draconian budget reductions." Ultimately, this could diminish Putin's influence, "creating new openings for his political opponents at home" and making Moscow look weak abroad.[3] Therefore, regardless of the success of this strategy, the fracking boom is being used as an energy weapon in the global power struggle between the West and Russia.

German Domestic Contradictions

Berlin and Brussels' energy policy initiatives toward a growing transatlantic share in Europe's energy supply are not uncontroversial and not to be accomplished overnight. On the one hand, Russia's business partners, the very successful E.ON and Wintershall energy companies, are not about to simply step aside and give up their position based on cooperation with Moscow. They are politically supported by the SPD, which, throughout West German history has always played a prominent role in the political relations with Eastern Europe, where gas trade was also important. The "Pipes-for-Natural-Gas Deal" and the "New Ost-Politik" of the 1960s and 70s are good examples. Accordingly, Germany's Minister of Economics, Sigmar Gabriel (SPD), declared last week that gas imports from Russia should not be put into question, especially since Moscow, "even in the darkest days of the cold war," always was a reliable supplier. A speaker for the Ministry of Economics was quoted saying that importing liquid gas from Canada or the USA is "a charming, but, for the time being, theoretical idea." Protests are coming particularly from the Christian Democratic parties, which have traditionally been more on the side of the German industry's transatlantic sector. Michael Fuchs, Vice Chairman of the CDU/CSU Parliamentary Group, declared that he is "not delighted about our dependence on Russia." "We should urgently find a way to change our means of energy supply."[4]

Grand Coalition

Observers point out that the "reverse flow" of the gas pipelines, which would be needed for feeding Canadian or US liquid gas, would also require certain technical measures for the infrastructure, as well as access to liquefied gas itself. This, in turn, if it is to be expanded, would require new liquid gas terminals. This infrastructure is "not yet available, in the form, we would need," concluded Angela Merkel last week.[5] EU Energy Commissioner, Günter Oettinger, is also thinking of ways to alter the situation. The debate that will take place over the next few weeks and months will show what Berlin and Brussels are doing, to offset the EU's dependence on Russian natural gas, using a strong transatlantic component - to weaken Moscow. Berlin's Grand Coalition - comprised of the Christian Union parties and the SPD - will have the task of finding a compromise that can unite the various sectors of German industry.

[1] Merkel: Gesamte Energiepolitik in Europa neu betrachten. Frankfurter Allgemeine Zeitung 28.03.2014.
[2], [3] Robert D. Blackwill, Meghan L. O'Sullivan: America's Energy Edge. The Geopolitical Consequences of the Shale Revolution. Foreign Affairs March/April 2014.
[4] Russland-Krise befeuert die Energiedebatte. Frankfurter Allgemeine Zeitung 29.03.2014.
[5] Merkel: Gesamte Energiepolitik in Europa neu betrachten. Frankfurter Allgemeine Zeitung 28.03.2014.