Europe Needs to Wean Itself From Russian Oil and Gas…and Fast

With tensions in Ukraine nearing a breaking point, the world is collectively looking to the Western powers for resolution. But, not surprisingly, the response so far has consisted of little more than a wag of the finger, with NATO and other world leaders unanimously condemning Russia's military action in the Crimea.

Source: AEI

While the reasons for this muted response are manifold, it's difficult to ignore the leverage the Russians hold in this standoff. For starters, the U.S. and other Western powers have little to gain from bringing the Crimean conflict to a head; Russia, on the other hand, greatly benefits from controlling the region, with its strategic access to the Black Sea and concentration of Russian-speaking peoples.

The real problem
More importantly, however, Russia has the power to effectively cripple the European economy by shutting off access to its gas pipelines (many of which flow through Ukraine), a blow that could be delivered virtually overnight. It wouldn't be the first time this has happened, and whether or not we reach this level of hostility, the mere possibility should strike a chord with Europeans and serve as a wake-up call that their position of energy dependence is a massive liability.

As of now, Europe imports around a third of its oil and gas from Russia, in addition to about a quarter of its coal. Not too long ago, these numbers wouldn't have raised much concern, as the greatest threat from Russia appeared to be its backwards social policies. Now, however, with the cards on the table, it seems apparent that the EU can only symbolically contest Russian aggression without inviting devastating consequences.

Sound familiar?
It wouldn't be much of a stretch to compare the situation to American dependence on Middle Eastern oil – or what we will soon be able to call "former dependence." In reality, U.S. energy independence is within our grasp, thanks in large part to reduced oil consumption and a renaissance of domestic production. Now that the threat of Russian aggression has reared its head, can Europe achieve a similar turnaround, or will it be forever married to Russian energy?

There are a few options here, and unfortunately, none of them can be implemented overnight. First, like the U.S., Europe has ample shale reserves of its own, notably those in Spain, Poland, and the U.K. Shale production takes time to develop, though, and many prior attempts to tap this resource have proved uneconomical. Additionally, Europeans have traditionally been more rigid in their opposition to fracking, making policy another obstacle to this course of action. With that said, it's possible that any gas shortages as a result of the crisis in Ukraine could reverse anti-fracking sentiment, and higher prices could encourage development of previously unattractive projects.

Then there's North Africa and the Middle East. Algeria already provides a significant amount of gas to Europe, and Libya is a major source of crude oil. Increasing oil production in Iraq also presents the possibility of increased exports through Turkey, but it would seem foolish to attempt to replace one unstable trading partner with a set of even less stable partners, and the magnitude of the effect would likely be insufficient in the short run.  

An American solution?
Perhaps the most exciting prospect is that of liquefied natural gas (LNG) imports. Europe's LNG infrastructure is still limited, and LNG is traded through fixed long-term contracts, but the idea is enticing nonetheless. With a newfound abundance of relatively cheap natural gas, the U.S. would make for a stable, sympathetic trading partner. Yes, we are still a long way from being able to satisfy Europe's excess gas demand in addition to our own, but an increasingly global market for natural gas (as opposed to fragmented markets determined by geography) would surely serve to deter the sort of resource-bullying Russia has shown itself to be capable of. 

From an American perspective, the benefits are numerous: Natural gas exports would be a boon to our economy (or so many believe), and the gas trade could strengthen our relationship with Europe while removing some of Russia's leverage. 

In concert with more efficient energy use and supplemental alternative energy development, it's not unrealistic to believe that increased LNG imports could free Europe from its reliance on Russian resources in the not-too-distant future. The speed at which this happens is dependent both on Europe building out its infrastructure and the U.S. determining the role that LNG exports will play in our own economy. 

But what now?
It's too late for changes in European energy policy to solve the crisis in Ukraine, as it lacks the ability to shield itself from an induced gas shortage or a spike in oil prices. But the very real danger presented by Russia's current position of power should be a call to action for European policymakers, and the only way to restore the balance of power is to seek alternative means of satisfying European energy demand. This won't happen overnight, and it will likely come from a variety of sources. For the moment, however, it appears that Putin has shown his true colors, and whether the conflict passes or comes to a head, Europe should heed the warning and begin to break the yoke of Russian energy dependence. 

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