Putin fears shale gas competition


Russian Prime Minister Vladimir Putin has urged his country's gas industry to "rise to the challenge" of shale gas as the United States and some European countries forge ahead with developing the controversial energy source.

US shale gas production may "seriously" restructure supply and demand in the global hydrocarbons market, Putin said yesterday (11 April) in his final address to the Russian Duma before he takes over as president on 7 May.

"Our country's energy companies absolutely have to be ready right now to meet this challenge," he said.

Putin said Russia must be prepared for "any external shocks" and "a new wave of technological change" that was "changing the configuration of global markets".

"I fully agree with the proposal of deputies that we need to create a better system for long-term macroeconomic, financial, technological and defence forecasting. This is especially important, given that the 21st century promises to be an epoch [of] new geopolitical, financial, economic, cultural and civilisation centres," he told Russia's lower house.

Bloomberg reported that the United States overtook Russia as the biggest producer of natural gas in 2009 as it extracted fuel trapped in shale (see background). That has slashed gas prices and led nations from China to Poland to explore exploiting shale gas, potentially cutting their reliance on Russian gas.

Russian propaganda?

France banned shale gas drilling out of ecological concerns. US energy giant Chevron suspended shale gas exploration activities in Bulgaria and Romania following ecological protests.

The Kyiv Post reports this is not the first time Putin has commented on shale gas. He mentioned it 18 months ago, saying that Russia's main energy company, Gazprom, needed to become more efficient in response to heightening competition.

Stratfor,  a US-based strategic intelligence company, says the Russian gas business is struggling with a number of problems, mostly related to its Byzantine pricing system that provides generous subsidies to domestic consumers.

Gazprom is also concerned about revenues from sales to Europe, which could fall as a result of price negotiations with many of its European customers.

Coupled with Europe's diversification of natural gas supplies away from Russia, this means Gazprom could soon be unable to continue offsetting its domestic losses with high profit margins from sales on the European market, Stratfor analysts say.

Ivan Matiyeshyn, co-founder of the Ukrainian Foundation for Democracy “People First”, argued that the optimal option for the Russian gas strategy is to create agreements with the rising gas powers from " the US, Canada, Norway, Britain which have the most advanced technologies on gas production for the diversification of its own exports to the Asian market."

"In case the plans of the US to supply gas to Europe are realised, Russia could compensate losses caused by the reduction of gas supplies to Europe.   In 2011 the volume of gas supplied by Russia to Europe was 150 billion cubic metres.  As a comparison, in 2011 the level of shale gas production in the US also came to about 150 billion cubic metres.  Besides, it is reasonable to expect that Gazprom will continue to realise the strategy of advancement of long-term contracts on gas supply to European consumers.  And if this strategy is supported by a successful Russia's entrance to the market of the Asian-Pacific region, Gazprom will manage to minimise its losses", Matiyeshyn said



Shale gas is an 'unconventional' fossil fuel that is found within underground fissures and fractures. Until recently, no method of safely transporting it to the surface existed.

However, by pumping water, sand and chemicals into rock formations under high pressure via a technique known as hydraulic fracturing or 'fracking', energy companies believe they have found a part of the answer to Europe's energy security problems.

The method remains intensely controversial because of its possible environmental risks, including poisoning groundwater and higher greenhouse gas emissions than traditional gas.

To proponents, shale gas represents a hitherto untapped and welcome alternative energy source to traditional fossil fuels. At the moment the continent depends on gas imported from Russia, and disputes between that country and Ukraine have disrupted winter supplies in recent years.

In the US, shale gas already accounts for 16% of natural gas production and some analysts predict that could rise to 50% within 20 years.

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