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What the frack? How US fracking didn’t change the world

di Maximilian Kriz

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The American shale revolution promised cheap fuels and an end to Europe’s reliance on Russian imports. But in the face of oil and gas cartels, this enthusiasm has proved short-lived.

It is not just economic sanctions and illegal annexations that preoccupy politicians in Europe and Russia alike. The main concern lies deep beneath Russian soil in the form of natural gas and oil. Russians depend on the export of these resources for financing the federal budget while Europeans depend on their import to heat, produce and transport.

Despite such situation of interdependence, it has been mostly the Europeans that felt the harsh reality of depending on the Eastern neighbour, for example in 2006 when Putin disapproved of the government in Ukraine and shut off all its European partners from the pipelines. That is what academics and politicians call the “energy weapon” or “energy invasion”, terms that reflect the urgency of the problem.

Not only is the EU prone to heavy price fluctuations but more crucially to political extortion, unable to fully condemn Russian violation of human rights. Guess which goods are not concerned by European sanctions following the Crimea incident: oil and gas. Sanctioning the fuels would hurt the Russians, but it would be painful at home as well.

Hail the shale

Suddenly in 2014, however, optimism spread throughout Europe thanks to fracking, or shale. German Chancellor Angela Merkel is not commonly known for outbursts of emotion, yet her statement that American fracking could alleviate Europe’s dependence on Russian imports did reflect more than just faint optimism. The need for Russian fuels is a major concern, and the US seemed to be on Europe’s side once more.

“The need for Russian fuels is a major concern, and the US seemed to be on Europe’s side once more.”

The shale revolution was indeed something of a revolutionary situation. Thanks to the use of fracking, the US was able to propel itself to the position of largest hydrocarbon producer in the world within a very short period, surpassing big incumbents such as Saudi Arabia or, again, Russia. First, America bolstered its own energy security before exporting the excess fuels to Europe and other regions. Consequently, oil and gas prices experienced an incredible drop from 2014 onwards, which was even more incredible considering that demand was recovering after the 2008 slump.

That is how the world looked like at the time. Why then are fuel prices back to new heights now, only 4 years later?

Petro-power

The incumbents reacted late but effectively, and the result is clearly visible. In the oil sector, OPEC aligned with Russia to cut global supply and artificially raise prices from 2016 onwards. In gas, Russia set up an OPEC-style club of exporting countries, the GECF, with the same goal of restricting output to yield higher revenues. And both times, it has worked.

What is the lesson for Europe? Decarbonisation cannot come quickly enough. On the one hand, domestic fracking will not be the solution because neither the law nor the public is in favour. On the other hand, Russia seems to have the stronger hand in the energy poker, despite the mutual dependence. Its efforts to form cartels with other fuel suppliers demonstrate Russian eagerness to maintain its power in the geopolitics of energy.

For a short time, America seemed to have broken Russian dominance in Europe. The fact that this effect could not be sustained should be a clear signal that the EU needs to rethink its energy strategy, urgently. Its economic and political strength depend on it.

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