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Energy diversification: Back to Cold War?

It looks like the same old story. Following the Russian-Western countries’ standoff over Urania, the Cold War jargon of limiting reliance over Russian gas supplies has put in place a European plan to diversify the source of its energy supplies.
Oil and gas have been the prime hard currency earner for Moscow even during the height of the Cold War and despite efforts by the then Reagan administration back in the 1980s to sway its European allies from getting deep into business deals with what Reagan called the “Empire of evil.”
However, despite these efforts, Moscow actually cut off gas supplies twice in 2006 and 2009 supposedly over the price dispute, which raised alarming bells in many European capitals, but the European Union (EU) in general continues to get one-third of its gas supplies from Russia with credible signals that it could increase in future reaching probably 80 percent in two decades. Norway provides another third and Qatar some 10 percent.
The EU has been trying hard to diversify and the British government circulated a paper last week to help the debate on such an approach with Prime Minister David Cameroon convinced that Moscow needs European markets more than the EU needs Russian gas.
“We should be looking at long-term energy diversification, security and resilience right across Europe and that is something which we will enthusiastically pursue,” said Cameron, whose country imports virtually no Russian gas.
But quarter of the gas used by the EU comes from Russia, accounting for 53 percent of Russia’s annual gas exports, with $24 billion (17 billion euros) a year. The point to remember here is the significance of price, which is the main concern of buyers, more than the ideological argument. And that is why the diversification plan does not call for a complete cut off or a phased out approach to gas supplies from Russia.
It pointed to the possibility of increasing the Qatari supplies, open up with Iraq and encourage the US to export shale gas, though first shipment from this particular source will not reach Europe before next year at the earliest.
In addition, the newly discovered gas in the Mediterranean particularly in Israel, Cyprus and Turkey may provide a new source of supply though three to four years for that option to materialize in a credible way.
However, this issue of diversification with its various angles bring two points for more discussion: The first relates to the shale gas industry and whether European countries are in the mood to invest seriously into the fracking technology and whether even in the United States such growing need could be met given the limitation surrounding the newly found source of supplies.
For instance, EU members like France, Bulgaria and others have restrictions on fracking, while others namely Britain and Poland are pushing to develop their resources. So there is quite a policy difference in this respect that has to be reconciled first if a regional approach is to be developed.
Still the most important development to watch is when a team of deep water engineers will start drilling later this year in the hostile Arctic Ocean. Those teams belong to the US company ExxonMobil and its Russian counterpart state-owned Roseneft.
The move is part of a $500 billion joint venture formed three years ago with ambitious goals that include, among other things, fracking shale fields in Siberia, drilling in the Black Sea and constructing a gas export terminal in eastern Russia.
Forging ahead with such mammoth projects that need decades to complete will test clearly whether there will be a go back to the Cold War days, or whether the world has gotten into a new era. The determining factor is how ExxonMobil sees itself and its interest, generated more from inside the United States or overseas.
If words by former ExxonMobil CEO Lee Raymond are any guide, his company’s interests no longer overlap with those of the United States. He was quoted as saying: “I’m not a US company, and I don’t make decisions based on what is good for the United States.”
The conclusion to draw from this and ExxonMobil as well as Chevron’s ambitious projects in Russia is that these companies now operate in a fully globalized environment, not one dictated by the Cold War agenda and mentality. How such new reality will play with hawkish members in Washington remains to be seen.

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