Categories: CSR reality check / Energy issues / Political spin

17 July 2012

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The F-word in the new Cold War

How does a near-European monopolistic vertical supplier (upstream, downstream and in-between) of an expensive fossil fuel from a semi-democratic country convince politicians from proper democracies that competition and significantly lower prices are bad things? Play an emotive PR trump card, that’s how.

Russia’s state-owned Gazprom has been hiring PR firms, engaging with protesters, the media and politicians in an attempt to persuade Europe that shale gas is more risky and polluting than their own stuff. This is obviously an opportunistic argument designed to preserve Gazprom’s near stranglehold on the continent’s conventional gas supplies. It is that objective that explains, as one commentator put it, why all of a sudden “Russia’’s Mr. Putin has become a great champion of other countries’’ environments”.

So let’s stay real, it is difficult to imagine either the European media or public buying this Russian spin; and the more it is transparently sourced in Gazprom’s PR machine the more discredited the message is likely to be. But the campaign in Europe against shale gas has legs, and all Gazprom really has to do is fan it and reap the benefits.

When one also considers Gazprom’s considerable ability to bully Russia’s neighbouring countries, its PR might well help engineer the outcome it desires. That is if – as currently seems to be at the root of the problem – the advocates of fracking don’t make a good PR case in favour of shale gas and oil to the European public and its policy makers.

Rather than discrediting Gazprom, the advocates of fracking would be better off explaining the logic behind Gazprom’s agenda: it is based on the recognition that come what may Europe must consume gas in vast quantities if it wants to keep the lights on.

Never mind Gazprom’s shenanigans, the key argument that needs making is this: renewed economic growth in Europe depends on an abundance of cheap energy that shale gas and oil could provide.

Shale gas mining in the US has already halved the price of gas as a feedstock. This has brought new life to once mothballed facilities for the production of fertiliser and petrochemicals and much more. This achievement – and the promise it could do the same for electricity supply – emboldened the normally cautious Obama to boast  in his 2012 State of Union address about the possibility of obtaining energy autarchy.

In contrast, Europe’s gas prices have fallen by a smidgen. That has been mainly because Russia has agreed to renegotiate better terms on long term contracts to stave off competition – potentially from shale gas, particularly from coal – to secure Gazprom’s future as a near-monopoly supplier of conventional gas.

The good news is that shale (different combinations of sedimentary rock) and the gas and oil it contains is as ubiquitous in Europe as it is anywhere else on earth. The bad news is Europe’s lack of confidence to extract it, which reflects a lack of leadership and clear thinking at the top.

European politicians fear, as Gazprom knows well, the public’s response to an announcement of a massive industrial drive to drill for shale gas and oil. Put more precisely, because it is not the same thing as public opinion proper, our politicians are overly-sensitive to the responses and views of unelected and unaccountable environmental campaigners, as well as being fearful of media hostility (see here here here and here).

Czech protesters, for example, have been campaigning against Hutton Energy, an Australian company headquartered in London, around the rallying cry of, “We do not want your American money.” The Czechs are considering a ban on shale gas exploration, while France has already placed a moratorium on fracking. Bulgaria banned searching for shale deposits at the first indication of domestic opposition, because, say some, of Russia’s influence rather than the strength of genuine public opinion. But Poland – which generates its electricity mostly from lignite – has been been exploring its use energetically. Forbes noted under the headline Why European Shale Is Totally ‘Fracked’:

Let’s put aside the fact that European rotary rig counts only number around 120 compared to 2,000 in the US, 700 in Canada and 450 in Latin America, or that Europe has no serious in-house fracking expertise, ropey corporate finances, unclear mineral rights and ‘nimbymania’. A 10% fall in European gas demand (2011-12) hardly helps either, but it’s in the political realm that most concern rests to get shale going across Member States.

Russia’s aim appears to be to popularize the bans so that there’s a European Union-wide moratorium on the use of hydraulic fracking technology; hopefully enshrined in an EU directive. As The Daily Telegraph reports, Alexander Medvedev, head of exports at Gazprom, believes that it is “unimaginable” that Europe would allow shale gas to be developed, not least because of its potential to contaminate drinking water.

So I repeat, can Gazprom really persuade the EU to adopt an energy policy that is not in its economic interests? Not directly, but it still might be successful. That’s because it is reinforcing prejudices and pessimism about risk and new technology that have an undoubted potency.

Already, Germany and Switzerland have declared that they are going to abandon nuclear power in the wake of Fukushima’s mishaps in Japan. Even France, which is 80 percent reliant on its nuclear plant, has a new government which says it will reduce its reliance on it to at least 50 percent by 2025 (that will come at the expense of higher electricity bills). Given how costly all of this is and might become, economics does not seem to be the main criterion right now.

The fact is, many European states are no longer thinking straight or rationally about energy-related issues. Almost regardless of the consequences and cost, they are more keen to be seen to take the low-carbon, anti-nuclear high ground.

Now, I’m no opponent of wind or solar power, in fact I’m a fan. But one does not have to be an opponent to recognise that their potential contribution to energy supply is being over-hyped and comes, based on available technologies, over-priced with their guaranteed feed in subsidies etc. For the foreseeable future, the world is still going to need all the cheap gas, oil and coal (not to mention hydro and nukes) it can lay its grubby hands on.

Meanwhile, as the Forbes piece says, by shunning domestic shale developments, North West European markets are banking on global gas fundamentals going their way; that is they are abdicating leadership and hoping for the best. They are seemingly content to squeeze out whatever’s left in conventional North Sea plays. Far more importantly, as Forbes adds, “LNG tankers keep docking at European ports to prime wholesale liquidity. In no way can you say that Europe is the master of its own gas destiny“.

The PR battle, then, for and against fracking is not a trivial one for hearts and minds and the attention of policy makers. It is one upon which the outcome of Europe’s future as an economic and political powerhouse might well be determined. Meanwhile, as Europe wobbles almost oblivious to its own interests, the US (which analysts are suggesting could out-produce Saudi Arabia and other Middle East countries in oil and gas by 2020) and China intend to frack on regardless.

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One Response to “The F-word in the new Cold War”

  1. […] has massive fracking projects of its own underway in Siberia. The real goal is to keep Europe dependent upon Russia for its fuel supply. Natural-gas prices in Europe are quadruple those prevailing in the United […]

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