Orhan Sattarov, European office of VK
The events in Eastern Ukraine that triggered the confrontation between Russia and the West can have serious consequences for the energy policy in Europe. The prospects of American shale gas on the European markets and the EU energy security strategy are discussed in the second part of VK’s interview with the coordinator of the Caspian Region Environmental and Energy Studies Center in Berlin and associated member of the Germany Society for Foreign Policy, Behrooz Abdolvand.
VK: Mr Abdolvand, you have cited the words of Guenther Oettinger and Angela Merkel on the European energy strategy. Is there a unified opinion in Europe about how this strategy should look like?
BA: At the last summit of the “big seven” in Rome the American energy interests were clearly pronounced, and they do not coincide with the European ideas about the diversification of energy sources. The USA and Canada are fighting for the European market and dream about a global Western energy superpower, while the UK insists on considering all the options – from hydro-fracturing to nuclear energy from Japan. Germany remains aside and refers to the general statement of the energy ministers of the “big seven”. This statement deals with the diverse “energy mix”, oil and gas infrastructure and transportation development and support for East-European countries; nuclear energy is in the background, Russia’s role is not directly mentioned. Germany and its energy minister Sigmar Gabriel propose having an a CSCE (Conference on Security and Cooperation in Europe) on energy that would include Russia. If the Americans manage to push forward their position and the diversification of Russian gas imports happens through importing US shale gas, it will have direct economic and indirect geopolitical consequences for Moscow. The direct result will be a decrease in profits from gas sales and a limitation of the economic and financial sphere of influence. This will cause a sharp decrease in Russian military expenditure – and the currently-observed tough foreign policy requires that they stay at the same high level. In the last two years the military budget of Russia has increased 50% , reaching about 90 billion dollars.
VK: The imports of American shale gas are often called an possible alternative to the Russian natural gas. How can the Ukrainian crisis influence the emerging American-Russian competition in the gas market?
BA:It seems that the US government tries to use the conflict in Ukraine to weaken the positions of Russian energy enterprises in the European market and to win them for its own companies. Indeed, the EU is considering imports of American gas as an alternative to Russian gas supplies in the mid-term. Obama promised already in March that the US would supply liquidized gas to Europe by ship. Similar statements were made by the Canadian prime minister. The Ukrainian crisis bolsters the intentions of US gas enterprises to reduce the share of Gazprom in the European market in the future. The US energy ministry is checking the requests for liquidized gas in Japan, India and the EU, where gas prices are much higher than in the US. American firms who want to deal with gas exports also hope that the high volumes of gas exports would allow for an increase in internal gas prices in the US to the international level. In this case both the international and internal markets would become so profitable that additional investments in local gas production would pay off. At the moment, the interest of American firms in gas extraction through hydro-fracturing is falling due to extremely low internal prices. If more permissions for gas expert are issued and if internal American gas prices rise, then gas production will become profitable and American gas companies can provide gas to the European market.
VK: Yet the US is very careful about giving permission for gas exports…
BA: This is connected to the internal situation in the US. The plans of the American gas companies provoked sharp criticism in the US. Environmental activists were put on alert because they fear that the gas boom and hydro-fracturing pose high risks to the environment. On the other hand, the corporate groups warn about the potential risks to the US economy. They now use the cheap gas for electricity, which is used in energy-demand production. Cheap energy helps develop America’s internal market. Therefore, the increase in exports of American gas will negatively influence internal prices and threaten the internal situation in the US. It is thus not surprising that the US government acts carefully in matters of gas exports.
VK: How realistic are the prospects for American gas exports to Europe in the near future?
BA: Firstly, until now the US has not started any serious refineries to produce gas. And the work needs to be done now for them to start exporting in 2018-2020. So the transatlantic gas supply to Europe remains a wish for now. American gas exports, in trying to become an alternative to Russian supplies, faces two major problems – time and money. Therefore, the EU’s dependence on Russian gas in the short- and medium-term cannot be reduced by gas imports from the US. The EU needs to search for the mid- and long-term alternatives to Russian gas as soon as possible. The final goal is a “gas mix” based on imports of shale gas and gas-pipeline supplies, long-term contracts and purchases on the emerging spot market. The EU also needs to have maximally-geographically diverse suppliers of energy resources.