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Commentary

Energy: Russia’s Achilles’ Heel


     
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Russian President Vladimir Putin is gambling in the Crimea that the United States and Europe will prove incapable of any effective response. Certainly, there is no appetite in the United States or Europe for a military engagement. And Putin is not greatly concerned about the largely rhetorical threats of unspecified consequences being directed his way by President Obama and other western leaders.

There is something, however, that might make Putin re-examine his reckless course: The Russian economy and government’s dependence on energy production and revenues. Russia in 2013 produced 10.5 million barrels of oil per day, worth about $350 billion at going world prices. Russia supplies Europe with about 30 percent of its natural gas, generating export revenues of around $60 billion in 2013.

Aggressive steps to boost U.S. oil production would create new pressures on world oil prices, potentially to Russia’s detriment.

Natural gas is even more promising. The United States has been moving at a snail’s pace to approve export facilities for liquefied natural gas (LNG). Shipped from the East or Gulf coasts, increased LNG exports from the U.S. would enable Europeans to substitute partly American gas for Russian gas (or force Russia to lower its prices to remain competitive, wounding Putin in the pocketbook).

This might depend, however, on significantly expanding U.S. shale gas production, so we could meet both domestic and export demands without driving U.S. gas prices up to levels that would punish American consumers and make U.S. LNG uncompetitive in Europe.

Fortunately, with the use of hydrofracking methods, and with the vast recoverable shale gas reserves in the United States, this is feasible, and could be accomplished reasonably quickly if it is made a sufficient national priority.

Shale “fracking” already is responsible for about 40 percent of U.S. natural gas production—at prices well below those of the early to mid-2000s.

For the next several decades, natural gas will be economically and environmentally the energy source of choice.

The large U.S. natural gas windfall to date, however, has had to occur in the face of fierce opposition from many in the U.S. environmental movement. President Obama deserves some credit for touting the benefits of U.S. natural gas production, but he has been timid about directly challenging his environmental constituents on the large gains that could be realized from expanded fracking. U.S. shale gas production thus far has occurred largely on private land, although the federal government owns about 30 percent of the land area of the United States. Opening up more government-owned land to energy development would be a wise and courageous strategic move at this time.

Besides U.S. exports of LNG, there is also potential for increasing natural gas production in Europe itself. Recent estimates suggest that the EU countries alone may contain about 300 trillion cubic feet of recoverable shale gas, about 30 percent of the estimated U.S. total.

It would take time to build needed facilities for exporting LNG from the United States. If the political will can be mustered, however, production of natural gas in Europe, using the same fracking technologies that have benefited the United States, could be ramped up fairly quickly. U.S. knowledge, experience and technology could help. Given the large geopolitical stakes, the United States also could apply direct political pressures on our European allies to take the steps needed to increase their gas production.

Russia’s greatest vulnerability lies in its very high economic dependence on energy production. If Russia continues to thumb its nose at international norms, what is required is strong political and policy leadership on both continents to counter the quasi-religious opposition that many U.S. and European activists and elites have toward expanded oil and gas production.

We are not without weapons in this fight. What we lack right now is the political resolve and wisdom to use them.


Robert H. Nelson is a Senior Fellow at the Independent Institute and author of the latest book, The New Holy Wars: Economic Religion vs. Environmental Religion in Contemporary America. He is also of Environmental Policy in the School of Public Policy at the University of Maryland. He received his Ph.D. in economics from Princeton University, and he has been Staff Economist for the U.S. Senate Select Committee on Indian Affairs; Visiting Senior Fellow, Woods Hole Oceanographic Institution; Member of Economics Staff, Office of Policy Analysis, U.S. Department of the Interior; Federal Executive Fellow at the Brookings Institution; Chairman of Interior Department Task Force on Indian Economic Development; and Staff Economist, Twentieth Century Fund.


  New from Robert H. Nelson!
THE NEW HOLY WARS: Economic Religion vs. Environmental Religion in Contemporary America
“Economics and environmentalism are types of modern religions.” So says this analysis of the roots of economics and environmentalism and their mutually antagonistic relations in the twentieth and twenty-first centuries. Questions about the proper relationship between human beings and nature have led to the growth of these public theologies, or secular religions, even while both avoid mentioning their derivation from Western Judeo-Christian sources. So while environmentalists regard human actions to warm the climate, expand human populations, and increase economic growth as immoral challenges to the natural order, economists seek to put all of nature to maximum use for the production of more goods and services and other human benefits.






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