Russia Fears American Energy Dominance — And That’s a Good Thing

Russia Fears American Energy Dominance — And That’s a Good Thing
Mikhail Klimentyev, Sputnik, Kremlin Pool Photo via AP
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Russian president Vladimir Putin once described the meteoric rise of hydraulic fracturing in the U.S. as “dangerous” — not to the environment, but to the Kremlin

Putin should know. He is, after all, an expert. His Ph.D. thesis, entitled Mineral and Raw Materials Resources and the Development Strategy for the Russian Economy” shows he understands both energy supply chains and their geopolitical importance. 

As Americans, we typically don’t think Russia when we think of Petro-states. We think “Saudi Arabia” or “the Middle East.” But with 52% of Russia’s federal budget and 70% of its export dollars attributed to oil and gas, we should. Putin certainly does. The emergence of the American shale industry and America’s ability to export its petroleum and LNG represented a major emerging risk to both Russia’s primary cash flow stream and its captive markets in Europe.

It wasn’t long ago that oil prices were dictated solely by OPEC’s Middle Eastern members and Russia. Remember shelling out $4 per gallon to fill up your tank?

The U.S. shale revolution changed all that. Entrepreneurs and innovators got to work to further develop a decades-old technology — fracking. This is a technique in which water (and yes, some chemicals, principally soap) is pumped under pressure thousands of feet into the ground to break up the rock formation to free the oil and gas trapped within, and create pathways for oil and gas to flow to the wellbore. Fracking was the key component to the domino effect that led to the United States adding more energy supply more quickly than any other time in human history, culminating in the U.S. becoming the largest energy producer on the planet less than a year ago. 

Another consequence of fracking was to make natural gas a cost-effective alternative to coal in our electric grid. One result is that the U.S. reduced its greenhouse gas emissions over the last 15 years more than any single country on the planet. Today, the U.S. is on its way to achieving its 2030 goal for the Paris Accord - well ahead of time. 

Of course this is all bad news for Putin, because Russia thrives on expensive oil. While the breakeven price for American shale crude was just $46 per barrel, Russia needs $59 to make ends meet. And the Kremlin is having déjà vu. In 2014, when global oil production soared and prices plunged, the Russian ruble’s value was cut nearly in half, sparking a years-long financial crisis.

The COVID-19 pandemic and its response resulting in a global economic slowdown and dramatic drop in demand for oil means Russia is hurting again. One oil trader called Russia’s failure play nice with OPEC+ in the shadow of shutdown “Russia’s biggest defeat” of the 21st century.

What is Russia doing to stop it? Propaganda? Check. “Fake News”? Check. Funding “grass roots” anti-industrial movements in the West?  Check. Did you know a tanker of Russian LNG was parked in Boston Harbor supplying Americans with Russian natural gas while American politicians played right into Russian hands by blocking pipelines across New York and New Jersey? Watching us shoot ourselves saves Russia the ammunition?

The last decade has seen a tectonic shift away from OPEC and Russian imports and toward North American production. We have gone from relying on tenuous trade relationships with authoritarian and usually unstable nations to being able to provide low-cost energy to parts of the developing world that desperately need it — empowering our brothers and sisters to recreate the “American Miracle” in their own countries.

A strong American energy industry isn’t just good for oil producers or good for the economy or good for consumers. It’s essential to our national security. Internationally, it’s key to bringing the billion people in energy poverty into a safer, more prosperous future.

It’s time for a good-faith, national debate on the relative benefits and consequences of all energy.

Plato wrote, “The measure of a man is what he does with power.” That’s true of nations, too. History has shown us the grim picture of what Russia does with power. A powerful America, on the other hand, and especially a powerful American energy industry, promotes freedom, equality, and human flourishing around the world.

 

Allen Gilmer is founder and former CEO and Chairman of the Board of Enverus, the energy industry’s leading data, insights, and software company.



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