Energy as a Weapon

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.

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. [sic] 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.

Full article: Energy as a Weapon (German Foreign Policy)

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