Legal Updates

Russia Fails to Defeat Fracking

Gazprom, Russia’s government owned natural gas company, has for decades supplied many Eastern European countries with most or all of their natural gas. It has also had a habit of using its dominant market position to bully its customers into paying more, often by cutting off natural gas supplies needed for heating in midwinter. Gazprom reduced or completely stopped flows of gas to Ukraine in 2006 and 2008, to 18 European countries in 2009, to Ukraine and Poland in 2014, and to Ukraine, Bulgaria, Romania, Slovenia and Bosnia in 2015.

Several years ago Russia and Gazprom identified U.S. hydraulic fracturing technology (fracking) as a threat to Gazprom’s market share, especially its near monopoly over supplying gas to Eastern Europe. The Russians realized that fracking technology had the potential to undermine their position by increasing the development of natural gas that would compete on the open market with Russian gas. In an attempt to address this threat, Russia turned to RT (formerly Russia Today), Russia’s government controlled television network aimed at influencing audiences outside of Russia.

RT has engaged in a concerted effort to generate foreign opposition to fracking. According to a report issued earlier this year by the US Office of the Director of National Intelligence, “RT runs anti-fracking programming, highlighting environmental issues and the impacts on public health. This is likely reflective of the Russian Government’s concern about the impact of fracking and US Natural gas production on the global energy market and the potential challenges to Gazprom’s profitability.”1 The report also suggests, as had long been suspected, that Russia helped fund and orchestrate anti-fracking initiatives in the United States. While promoting fracking in their own country, Russians spread misinformation about dangers of fracking and encouraged fracking bans elsewhere.

Despite Russian efforts to stymie the development of natural gas by fomenting unfounded fears about fracking, exports of liquefied natural gas (LNG) from the United States are expected to soar over the next few years. Little more than a decade ago, the United States was still expecting to import LNG and built expensive infrastructure to handle shipments of gas from the Middle East and Asia. Then a combination of fracking and horizontal drilling turned the industry on its head, supplying more natural gas than America can consume. Mexico has been buying a lot of low priced American gas, more than quadrupling its imports by pipeline since 2010, but it has not been enough. As a result, American producers have turned to liquefying natural gas for export by sea. According to Amy Myers Jaffe, an energy security expert at the Council on Foreign Relations, “This bulge of LNG is going to completely upset the apple cart of world energy politics and the global competition of fuels that is still hard for people to comprehend. Russia will be the loser.”2

For the first time in almost 60 years, the United States now exports more natural gas than it imports. The first shipment of LNG from the United States to Poland landed last June. A month later, Lithuania took delivery of its first shipment of American LNG. Much more will follow. LNG exports from the United States are expected to more than double from 1.9 Bcf/day in 2017 to 4.6 Bcf/day by the end of 2018. A number of other LNG export facilities are in the process of being permitted. If completed, they would add more than another 10 Bcf/day of export capacity.3 Although there will be a large increase in LNG exported, the amount will still be a fraction of the approximately 75 Bcf/day that the United States consumes.

Russia may have used dirty tricks in an attempt to undercut American companies and other producers of natural gas, but it has failed to stop fracking and the flow of American gas to the rest of the world.

1 Office of the Director of National Intelligence, “Background to ‘Assessing Russian Activities and Intentions in Recent US Elections’:  The Analytic Process and Cyber Incident Attribution,” Jan. 6, 2017.

2 Clifford Krauss, “Boom in American Liquified Natural Gas Is Shaking Up the Energy World,” The New York Times, Oct. 16, 2017.

3 Tim Beins, “U.S. LNG Export Volumes on Steep Growth Trajectory As New Facilities Enter Service,” The American Oil & Gas Reporter, October 2017.