Would Russia Kill European Fracking To Protect Gazprom?

  • Date: 04/07/14
  • Reuben Brewer, The Motley Fool

Russia is in the midst of an ugly fight with Ukraine, and it has the potential to upend energy markets around the world. That’s a big problem for Russia’s Gazprom, the state-controlled natural gas giant. On top of that, there are now accusations of covert efforts to hamper shale gas drilling in Europe.

Is this energy standoff going to get uglier before it gets better?

A Gazprom-sized problem
Russia supplies Europe with around 30% of its natural gas. That makes the “old world” a valuable customer. About half of that goes through Ukraine, the country that Russia is sparring with over Russia’s annexation of Crimea and natural gas deliveries.

In fact, Gazprom just cut Ukraine’s gas supply, though it is still sending enough gas through Ukraine’s pipes to supply Europe. The last thing Gazprom wants to do is jeopardize its European customer base. That one region accounts for roughly half of its natural gas sales. While the company has inked a deal with China to send gas to that giant nation, the pipes to do so aren’t built yet.

Source: EIA

Now there are accusations that Russia is working hard to keep Europe dependent on its gas supplies. According to Nato chief Anders Fogh Rasmussen, Russia is doing this by funding anti-fracking groups. That’s something that some of the larger groups deny, but it would be hard to suss out where all of their donations come from in the anti-fracking movement.

Gazprom or bust
There are good reasons for Russia to undertake such a covert operation. For starters, Gazprom would suffer greatly if its European business started to slip away. Second, by keeping Europe hooked on Gazprom gas, Russia maintains a strong bargaining position in world politics.

That, however, just gives the United States more reason to come to the aid of its European allies. Right now, the export of U.S. natural gas is severely limited. With the combination of horizontal drilling and hydraulic fracturing (fracking) in the U.S., however, the flow of gas has outstripped demand and pushed U.S. domestic gas prices to record low levels. [...]

If the U.S. gas export market opens, you might find that Gazprom starts sweating. That’s because it’s the only logical loser if the United States starts exporting gas to Europe, just like it’s the only logical loser if Europe drills more gas wells. Too bad for Gazprom that Russia can’t stop the U.S. gas revolution that’s already well under way. If you are looking for a safe way to play Russia’s newfound aggressions, keep an eye on Kinder Morgan and steer clear of caught-in-the-middle Gazprom.

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