Baker Institute experts: US shale gas can counterbalance Russia in Europe

The unconventional (shale) gas revolution offers an opportunity to re-think how the United States applies power in Europe, according to experts in the Center for Energy Studies at Rice University’s Baker Institute for Public Policy.

Credit: University

Gabriel Collins, the Baker Botts Fellow in Energy and Environmental Regulatory Affairs at the Baker Institute, and Anna Mikulska, nonresident fellow in energy studies, outlined their insights in a new working paper, “Gas Geoeconomics in Europe: Using Strategic Investments To Promote Market Liberalization, Counterbalance Russian Revanchism and Enhance European Energy Security.” The paper examines the merits of a gas geoeconomics approach — using “economic instruments to produce beneficial geopolitical results” — to develop U.S. and EU policy options to bolster gas supplies and national security in Europe.

“The U.S. should ultimately be indifferent to the source of Europe’s gas molecules, so long as they come through — or could come through — enough channels to reduce any single supplier’s ability to coerce consumers,” the authors wrote. “Whether the gas comes from Sabine Pass, Qatar, Norway or Russia-based liquefied natural gas producers, as long as it diversifies European gas supplies away from dependency on Russian-controlled pipeline supplies, it should be welcome from the U.S. perspective.”

U.S.-backed investments and other financial support for the greater pipeline connectivity and liquefied natural gas import capacity are a key first step in this process, the authors said. “The outcome is not fully certain, and such geoeconomic investments should be viewed as ‘risk capital’ that could be lost in part or entirely,” the authors wrote. “It is important to be honest about this when discussing the idea with officials in Washington. But the upfront financial risk is worth taking in light of the potentially dire consequences that could flow from Russian decisions to employ gas coercion more broadly in Europe. Furthermore, if sanctions are kept as is — or possibly tightened — the costs of even an ambitious plan of U.S.- funded gas infrastructure investments in Europe are far lower on a proportionate basis for Washington than the costs that such an approach would likely inflict on Russia through loss of inframarginal rents on gas and forced self-funding of export diversification projects.”

The gas geoeconomics plan taps into strong sentiments by certain U.S. political factions that Washington needs to get more involved with European energy security issues, the authors said. “It would also help offset Russia’s ability to use the planned Nord Stream 2 pipeline as a way to isolate and coerce countries in Central and Eastern Europe,” the authors wrote. Gas geoeconomics could potentially save American taxpayers money in the long term by harnessing the market to constrain Russian revanchism and underpin European energy security, the authors said.

“Think about it this way: Even a $5 billion annual investment in Europe’s gas supply security would only equal 0.13 percent of the total fiscal year 2018 federal budget and about 1 percent of anticipated defense spending in that year,” the authors wrote. “And the spend would primarily fall upfront in the program’s first few years, while its ability to hedge against Russian coercion and reduce Russia’s profits from gas sales into Europe would last for decades as countries liberalize their markets, private capital flows into politically de-risked corridors and non-Russian natural gas suppliers strengthen their positions in Europe. By stimulating such development, U.S. jump-start money would be progressively ‘sunsetted’ out as private funds took over and a more broadly liberalized gas marketplace bolstered European resilience in the face of potential gas coercion by Russia.”

About Jeff Falk

Jeff Falk is associate director of national media relations in Rice University's Office of Public Affairs.