Geopolitics Of Energy Resources; What Can South Asia Learn From Europe

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Context

US Energy Information AdministrationThe terms ‘fracking’ and ‘shale gas’ have become quite popular in the last ten years or so. Shale gas and techniques such as fracking present tremendous potential for liberating individual countries from the clutches of a few gas and energy rich nations. This dynamics obviously creates unique political and economic challenges.

The crisis in Ukraine and Russian annexation of Crimea has brought the geopolitics of energy resources to the front. Energy interdependence, just like economics, is immensely beneficial in normal times. However, in conflict, dependence of any kind puts at peril the state security and integrity, as the Europeans are realizing. US itself is increasingly using fracking to achieve energy security.

In this context, the lessons being learnt by the Europeans and the US, present interesting lessons for energy dealings in the South and Central Asia region. Especially when the progress on a number of promising energy related projects, such as the TAPI and Iran-Pakistan gas pipeline projects, remained mired in regional and global politics. (Diagram Source: US Energy Information Administration)

The Fracking Process

Fracking is short for hydraulic fracturing and has been around for 60 years. It is a process by which a mixture of water, sand and chemicals is injected into geologic formations (eg shale) at high pressure in order to create minute fractures in rock bed, typically located 6,000 to 10,000 feet below the surface, and release entrapped oil and natural gas. Recent advances in directional drilling (vertical, horizontal and S-shaped) have made extraction of natural gas and oil from shale formations economically viable. From a single well-pad on the surface, multiple wells can be drilled in different directions that penetrate the reservoir vertically or horizontally.

Fracking is a proven technology with limited barriers to its implementation. As compared to nuclear energy, it is considerably less complex and requires significantly less time to implement. Moreover, the area of impact is limited and it does not require displacing people or use arable land, as in the case of hydroelectric dams. And it has the potential for creating thousands of new jobs.

But fracking is not without its attendant environmental concerns. For example:

1. Fracking a single well requires up to seven million gallons of water, plus an additional 400,000 gallons of additives, including lubricants, biocides, scale and rust inhibitors, solvents, foaming and defoaming agents, emulsifiers and de-emulsifiers, stabilizers and breakers.

2. 70 per cent of used contaminated water comes back up, bringing with it radioactive material and heavy metals (bromide, arsenic, barium, uranium, radium and radon) that need proper disposal.

3. Potential migration of the fluids and gases left in the formation into potable water reservoirs. (the oil and gas industry estimates that 60 per cent of wells will leak over a thirty-year period)

4. In places where shale gas is present but water is scarce, the need for water for fracking can easily outstrip supply thus leading to clash between drilling companies and local communities.

The Nature of Debate

The geopolitical ramifications of fracking and its potential gains are only beginning to be realized. The controversy is fierce, permeating both sides of the Atlantic. However, there are major differences between the nature of the debate in Europe and in North America that warrant a closer look.

Geological Potential: France, Germany and Poland have the largest resources of unconventional gas in Europe. On the other hand, United States, Argentina and Mexico have four times greater reserves than that of France and Poland, and almost 20 times more than in Germany.

Energy Security: As the Ukraine crisis unfold and the situation of Middle East remains volatile, achieving energy security has emerged as a paramount goal for Europe. Eastern European nations, including Germany are heavily reliant on Russian gas. France, on the other hand, is traditionally more independent because of its intensive use of nuclear power.

Regulatory Framework: There is no unified regulatory framework for fracking. In Poland, there is a broad political coalition supporting the development of new sources. In Germany, politicians are facing increasingly professionalized resistance by a network of environmental groups. France has simply banned fracking altogether since 2011. In contrast, U.S energy policy has traditionally been much more industry friendly and new technologies gain political backing more quickly. Fro example, loopholes crafted under former Vice President Dick Cheney exempted energy companies from key provisions of the EPA regulation under the Safe Drinking Water Act, often referred to as the “Halliburton Loophole”.

Re-Industrialization: Against the backdrop of the financial crisis and perceived threat from the growing Chinese economy, many in the United States are seeing the availability of domestic energy as a key ingredient to re-industrialize the country. European countries do not have a high potential for unconventional gas and oil to warrant such hopes and thus have to seek diversification of its energy sources.

Space: European countries are much more densely populated than most parts of the United States. Drilling operations and settlements are often in the immediate vicinity of each other. As a result, resistance to and concerns of local stakeholders are more pronounced in Europe. In addition, in European countries the state generally holds the rights to natural resources, as opposed to in the U.S., where the owner of the land also owns its resources.

Ukraine and the Energy Politics

The recent Russian annexation of Crimea and the debate over how to respond and punish Russia has brought the geopolitics of energy in to the limelight once again.

Recent deliberations at the House Foreign Affairs Committee in Washington reveal a desire to use the increasing American domestic energy output, using fracking, as an instrument of its national power. Moreover, there is a strong push for opening up natural gas exports, especially in the face of Russian threats, and heavy dependence of Eastern Europe on Russian energy sources.

Despite the hype, there remain many challenges in this regard. United States has scarce pipeline and terminal capacity to transport huge amount of Liquefied Natural Gas (LNG) across the Atlantic. Even if it can ship LNG to Europe, there is lack of infrastructure in Europe to convert LNG back to gas form. This is the same problem Pakistan faced in importing LNG from Qatar. Plus the cost of shipping LNG from the US to Europe makes it a less feasible alternative. Russia can easily outmaneuver the United States by lowering its energy export prices to Europe. Would that mean lower revenues for Russia: yes, but marginally because Russian revenues are dominated by oil sales. Additionally, Russia is planning to double its oil and gas exports to Asia in the next 20 years, which includes China and Japan.

From a business standpoint, United States will profit a lot more by supplying LNG to Asia than Europe. But even with all these hard ground realities, many Eastern European countries have insisted that United States take the lead in providing them with an alternate and viable energy options to offset Russian dominance and monopoly. Increasing American energy independence is a cause of growing alarm for the Middle East, with the powerhouses there feeling more expendable.

What it Means for Pakistan

When it comes to Pakistan, specifically related to shale gas extraction, it is vital to review the experiences of other countries dealing with shale energy extraction and look at both the positive and negative aspects. According to some experts, if properly developed, Pakistan’s oil and gas resources are enough to meet the nation’s requirement for the next 50 years.

The Chairman of the Pakistan’s Task Force on exploitation of shale gas, Dr Gulfaraz, recently stated the country has the potential to become the ninth largest nation in the world having shale gas resources. The estimates vary depending on different sources but it is clearly a viable source of energy with a potential to make Pakistan significantly less dependent on foreign energy sources in decades to come. This is significant when Pakistan’s other significant energy projects, such as Iran-Pakistan gas pipeline and TAPI, have fallen victim to international pressure and regional instability.

(Map Source: US Energy Information Administration)

On the other hand, Pakistan’s close ally China has by some estimates the largest reserves of shale gas/oil in the world. The nation is working on technologies and methods to bring the cost of exploration, material, and infrastructure down. Pakistan can learn from Chinese know-how and collaborate to exploit shale gas/oil proven reserves. The good news is that the first well for Tight gas, similar to shale gas, has started producing 15 million cubic feet per day of natural gas at Sajawal gas field in Kirthar block in Sindh province. This is indeed a major development connected to unconventional hydrocarbon energy extraction in Pakistan.

The main focus for Pakistan should be to gain energy security. This will require diversifying the availability of different energy sources within and outside Pakistan, with emphasis on stability and affordability of prices for the consumers. Like the US, if Pakistan can increase its energy independence, it would also lead to economic prosperity, more leverage in the conduct of its foreign policy while managing foreign influences. This obviously requires strategic long-term thinking. However, this cannot occur in the absence of peaceful ties with the neighbors. The areas rich in energy resources are also engulfed in instability and insurgencies, often supported by external forces.