04 February 2014

The Commercial and Security Costs of Europe’s Fear of Fracking

Despite the significant benefits that shale gas could provide to Central Europeans, worries over the health and environmental impact of hydraulic fracturing continue to persist across Europe. Confronting these concerns, Distinguished CEPA Fellow Keith C. Smith demonstrates how this “fear of fracking” is unfounded and imposes unnecessary additional costs on Central Europe’s security and economies.
The supporters of hydraulic fracturing (fracking) have been surprised by the amount of fear and hostility that exists in many parts of Europe. While the process of extracting natural gas from shale rock is relatively safe, and the resulting fuel emits significantly less carbon and other pollutants than coal or diesel fuel, there have been noisy demonstrations in every European country where fracking has been attempted. Opponents of the process now travel from one country to another in order to protest, usually against fracking by a Western company. Bulgarians have journeyed to Romania; Russians have demonstrated in eastern Ukraine; and funding for anti-fracking rallies is flowing into Central Europe from groups in Western Europe where exploration is not even being considered. Given the policy and economic stakes, it is worth examining the claims of both sides in the fracking debate in an attempt to understand why the fear of fracking has such a strong hold in parts of Europe, but less so across the Atlantic.
The recent rapid increase of natural gas and oil production in the United States resulted from the development of cheaper and cleaner technologies, favorable geology and reasonable government policies at both the state and federal level. Substantial technological progress in fracking has, at least for now, given fracked gas a competitive advantage over other forms of energy, including nuclear and renewables. The impressive growth in output is also due to a commercial climate that encourages risk-taking, and is facilitated by America’s unique property laws and minimal government regulation. Five years ago, the United States imported 13 percent of its natural gas and 57 percent of its crude oil.[1] Today, the figures are quite different. With natural gas imports at only 8 percent of consumption, the United States is nearing independence. Crude oil import-dependence has dropped to 45 percent, and continues to decline each year.[2] It is estimated that carbon dioxide (CO2) levels have dropped by 12 percent in that time, with major reductions in sulfur dioxide (SO2) and mercury emissions, chemical elements that are especially harmful to public health.[3] The levels of small particulates from coal that cause serious lung diseases have also decreased significantly.
The economic benefits of U.S. shale gas production have been equally substantial. In America, employment in the energy sector is estimated to have increased dramatically as a direct result of massive investments in fracking operations. Growth has come to previously poor areas of the country, from North Dakota to Texas. Within the last five years, the unconventional energy industry has directly supported approximately 360,000 jobs, and indirectly supported the employment of 350,000 people in supplies and 850,000 in goods and services.[4] In total, the fracking boom has been responsible for securing 1.7 million jobs in the United States. Meanwhile, the U.S. trade deficit as a percentage of Growth Domestic Product (GDP) shrank from 6 percent in 2005 to 2.7 percent by mid-2013.[5] A significant driver behind this trend is that fewer dollars are leaving the U.S. economy to pay for imported energy. Furthermore, natural gas prices are now 3-4 times higher in Europe and 5-7 times more costly in parts of Japan and Korea than in the United States. Likewise, crude oil prices in the United States now range from $15-20 cheaper than in Europe and Asia.
Within the next few years, the United States will become a natural gas exporter, and this will provide additional benefits to countries that are dependent on energy imports — including approximately 90 percent of Europe. Simultaneously, Asian countries should profit directly and indirectly from an increase in the available supplies of LNG on the world market. However, many European industries that depend on energy inputs will be at some disadvantage due to their relatively higher energy costs. As a result, several large industrial firms are already moving plants to the United States from Europe and Asia, for example German chemical giant BASF, in order to take advantage of significantly lower U.S. energy prices.
Despite the possibility of reaping similar benefits in Europe, countries like France, Italy, Germany and the Czech Republic have responded to public fear by banning fracking. This fear is, in some cases, fueled by domestic producers of alternative fuels. Consequently, European officials are faced with well-financed campaigns that encourage concern over the allegedly detrimental (and unproven) effects of fracking on the environment and human health. In some corners, this worry is being propelled by non-European Union (EU) importers of natural gas. Some American environmental groups have issued misleading, and even false, reports regarding the alleged negative effects of fracking. One example is the documentary Gasland. It has circulated widely in Europe, including within EU institutions, and yet the claims of environmental damage presented in this film have been discredited by scientists at leading American universities.
Much of Europe is harmed by the failure of fracking critics, including government officials, to stay abreast of the fast-improving technologies that make exploration and development cleaner, less of a burden on water and land use and more productive. Some figures cited in Europe regarding U.S. methane emissions are either based on old technology or have been discredited by more recent studies by the Environmental Protection Agency (EPA). As a respected Russian economist recently wrote, “Do you know what is now helping Russian gas in Europe? It is the European environmental lobby, which insisted on freezing the development of shale gas, thus restraining the growth of domestic production in Europe. Why the Europeans agreed to do this, I do not know the answer. It is difficult to understand.”[6] Difficult indeed!  
A major challenge for pro-shale states such as Poland, Lithuania, Romania and the United Kingdom is the attempt by European Greens within the European Commission’s Directorate-General for the Environment (DG Environment) to curb fracking operations throughout Europe. Already, German Greens have managed to stop fracking in Lower Saxony – operations that have been under way since 1955 without any negative consequences. One reason for the pushback is that many environmental groups believe that increased natural gas production will crowd out the wider adoption of renewable energy, and will delay desired reductions in green-house gases. However, the experience in the United States over the last several years has demonstrated that this is not necessarily true. 
Investment in solar and wind energy has soared in the United States at the same time that hydraulic fracturing has increased. Large solar fields are being constructed in California and Arizona, and the output of wind energy is increasing rapidly in the Midwest, Texas and off the East and West coasts of the United States. There is no evidence from the American experience that increased natural gas production is holding back the development of renewable energy. In fact, the major effect of fracking has been to reduce hydrocarbon imports and lower harmful emissions through the replacement of coal-fired power plants with gas generators that emit half as much CO2, and are free of SO2 as well as mercury. In addition, gas does not spew out the harmful particulates that are so damaging to public health like coal does. Furthermore, significant advances in energy efficiency have taken place in the United States, particularly in the transportation sector – and all thanks to the lower-cost availability of natural gas.
In an ironic twist, Germany is importing American coal that is no longer needed in the United States, as it is being replaced by gas as the ‘fuel of choice’ for new and modified power plants. German energy costs are substantially higher than in many other EU member states. Meanwhile, Europe remains dependent on high-priced Russian natural gas, and Poland will soon be importing Qatari gas that is even more expensive than that from Russia.
In light of this, Europeans opposed to fracking should look past the voices of doom regarding hydraulic fracturing and instead examine the latest science and best practices concerning the environmental and health effects of this method of hydrocarbon extraction. Even Russia, which actively discourages Europe from engaging in fracking, is ramping up the use of this technology in its West Siberian fields. At the same time Russian television broadcasts throughout Europe highlight and promote opposition to fracking, particularly when carried out by Western firms outside of Russia. Oddly, the use of fracking technology by energy firms in Russia is deemed safe and effective when approved by the Kremlin. Meanwhile, Russia charges Central Europeans at least 50 percent more for gas exports than it does many Western European markets, countries that have easier access to imports from other sources to begin with. It is not by accident that the Nord Stream and South Stream pipelines were designed to by-pass Central European countries that pay the most for Russian gas. These pipelines only provide political leverage, not increased efficiencies.
Considered from this perspective, the countries of Central Europe are the region’s most energy vulnerable states. For that reason, public officials, media leaders and the general public need to be exposed to the experiences of fracking in other countries, like the United States, in order to push back against those promoting scientifically discredited claims regarding dangers to the environment and public health. If the “fear mongers” win this battle for public opinion, Central Europe’s drive for modernization will slow and the economic gap with wealthier members of the EU will not close — at least not as rapidly as it would otherwise.

[1] Banerjee, Neela, “U.S. Report: Oil Imports Down, Domestic Production Highest since 2003,” Los Angeles Times, March 12, 2012. Available here: http://goo.gl/wiXu7X.; “U.S. Natural Gas Imports & Exports: 2008,” U.S. Energy Information Agency, September 11, 2009. Available here: http://goo.gl/vEV6ZR.
[2] “U.S. Natural Gas Imports & Exports 2012,” U.S. Energy Information Agency, July 23, 2013. Available here: http://goo.gl/sSNCCz.
[3] “U.S. Energy-Related Carbon Dioxide Emissions, 2012,” U.S. Energy Information Agency, October 21, 2013. Available here: http://goo.gl/QKKeHU.
[4] Unger, David J., “Jobs report: the energy connection to growth,” The Christian Science Monitor, March 9, 2013. Available here: http://goo.gl/WUtqjX; “Unconventional Oil and Gas Production Supports More Than 1.7 Million U.S. Jobs Today; Will Support 3 Million by the End of the Decade, IHS Study Finds,” IHS, October 23, 2012. Available here: http://goo.gl/SchOFJ.
[5] Philips, Matthew, “A Shrinking U.S. Trade Deficit – Brought to You by Fracking,” Bloomberg Businessweek, September 3, 2013. Available here: http://goo.gl/b8N52H.
[6] Rozin, Igor, “Russia’s Gas Industry is Not Out of Gas,” Russia-direct.org, November 6, 2013. Available here: http://goo.gl/ox5EXt.