Gas Pains

Russia's dominance of Eurasian markets means long-term trouble

3 min read

This story was corrected on 31 October

Russia expert Marshall Goldman has dubbed the country a ­”petrostate,” but with all due respect, that’s somewhat ­misleading; Russia is really a gigantic natural-gas company backed by a huge nuclear arsenal and an increasingly ­proficient, conventional military [see The Data, in this issue]. Though it's also a top oil producer and exports 5-6 million barrels per day to Europe, it cannot dictate price because Europe has many alternative suppliers. But with its seemingly boundless gas reserves, Russia is in a position to dominate the Eurasian ­market for at least a generation to come.

Why can’t the European Union just adopt a strategy of energy ­independence and wean itself from Russia and the ”stans”? After all, the EU has its ambitious 20/20/20 ­program, aiming to obtain 20 ­percent of its energy from renewables, increase energy efficiency by 20 percent, and cut carbon emissions by 20 ­percent, all by 2020. And the EU has also been trying hard to diversify gas ­supplies. In mid-September, for ­example, it informed Nigeria of its interest in co­funding a proposed 4300-­kilometer pipeline to bring natural gas directly from Africa to European markets.

Here’s the problem: from any ­viewpoint, natural gas is such an attractive fuel that no matter how much you try to reduce your consumption and diversify your supply, you’re always going to want more. Since the 1990s, gas has been the fuel of choice for electricity generation, because of high turbine efficiency and its cleanliness and relatively low carbon content. Per unit of energy produced, gas emits no more than half as much carbon as coal, which means it makes good sense to replace coal with gas plants to meet emissions targets.

Gas is also a very attractive home-heating fuel and is increasingly being used for motor vehicles too. In ­compressed form, it’s powering ­public transportation and fleet vehicles in cities from New Delhi to New York.

If fuel cells ultimately power most cars and the vision of a hydrogen ­economy is realized, a lot of that hydrogen will have to come from natural gas—or from water hydrolyzed using electricity generated by gas plants.

Under the circumstances, Europe will want to keep importing all the gas it can persuade Russia to sell at ­reasonable prices. But Russia will be in a position to manipulate the Eurasian markets, playing off fast-growing East Asian demand against Europe’s needs.

Europe’s dependence on Russian gas would not necessarily be a big ­problem if the Europeans trusted the regime running Russia. But, ­increasingly, they don’t. Russia has repeatedly shown its willingness in recent years to cut off gas supplies for political reasons, ­basically to bring countries it considers its ­satellites to heel, notably Ukraine. Of course it wouldn’t dare cut ­supplies to a country like Germany, which gets about half its gas from Russia. But where German and Russian ­interests and values collide, Russia could ­manipulate markets to get its way and use the threat of its market power to ward off diplomatic or military action.

For some years, as the Putin regime has consolidated its position and ­eliminated opposition, European unease about Russia has grown. But there has also been fierce ­determination to avoid a renewal of Cold War ­tensions and a tendency to focus on U.S. ­misdeeds. Important turning points in European elite opinion were the arrest in October 2003 of oil oligarch Mikhail Khodorkovsky, who had been ­pouring millions into oppositional groups and toying with the idea of ­challenging Putin for the presidency, and the ­murder a year later of the crusading journalist Anna Politkovskaya, Putin’s sharpest and most persistent critic.

A recent survey by London’s Financial Times found that European mistrust of Russia has increased sharply in the past six months: the proportion of respondents who ­consider Russia the greatest threat to world stability rose from just a few percent in July to nearly 20 percent in September, putting it well ahead of Iran and almost as high as China. It may come as a shock to many American readers, however, that the United States still ranks in European minds as the greatest threat to world stability, ­scoring over 25 percent in September.

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