March 24, 2014
Dean Baker
Al Jazeera America, March 24, 2014
See article on original website
In the wake of the Russian takeover of Crimea, there havebeen a number of calls for weaning Europe from dependence on Russian natural gas. Some have suggested that Europe would abandon environmental restrictions on drilling for oil and gas to increase domestic production. To help, the U.S. would continue to massively increase production of oil and gas as well as its capacity to liquefy natural gas and transport it to Europe.
The weaners seem to have the impression that this is yet another case in which the United States has to come to the rescue of those weak Europeans. After all, while we were drilling everywhere, the Europeans were fiddling around with wind and solar energy, all the while making themselves vulnerable to Russian President Vladimir Putin’s machinations.
Reality-based fans of arithmetic see matters differently. The reality is that Europe, especially Germany, has done a huge amount over the last two decades to reduce its consumption of fossil fuels, including natural gas, from Russia. The reduction in fossil fuel use swamps the impact of the drill-everywhere strategy in the United States.
If Europe had not been aggressively pushing to reduce its energy use, there is no way that gas from Russia could be replaced by domestically fracked gas or imports from elsewhere. In addition, Europe’s efforts to reduce fuel consumption have the advantage of slowing global warming.
According to the Energy Information Agency, Germany’s conservation measures have had the effect of reducing its energy intensity of production (the amount of energy used per dollar of GDP) by roughly 30 percent over the last two decades. While the United States has seen a comparable percentage reduction in its energy intensity, its energy intensity of production is still far higher than Germany’s. In fact, the current level of energy intensity in the United States is higher than the energy intensity of Germany’s economy in 1991. If Germany were as energy inefficient as the U.S., it would need over 50 percent more energy to meet its needs.
In addition, Germany now generates almost a quarter of its energy from renewable energy sources. The vast majority of this energy comes from wind and solar, with hydropower counting for less than a quarter.
If Germany and other European Union countries had not been aggressively promoting conservation and alternative energy sources, the price of Russia’s natural gas would probably be close to twice its current levels. The demand for natural gas would be far higher; the only countervailing factor would be the extent to which dirtier energy sources such as coal might have been used instead.
That seems unlikely even if we decided to ignore all environmental considerations. Many of the new fields already have declining production, so it would take a huge increase in drilling to fill the gap and add capacity to allow for large-scale exports to the EU.
In addition, we would have to increase our ability to liquefy and export natural gas. This can be done, but it takes time and money. One industry source put the full cost of constructing an export facility at $30 billion. This is money that could be recovered only through many years of exporting large volumes of natural gas. And these facilities would take years to build. Even in an optimistic scenario, large volumes of liquefied natural gas would probably not be heading to Europe until the end of the decade.
If the goal is to reduce demand for Russian natural gas, the most cost-effective way is to do much more of what Germany and, to a lesser extent, the rest of the EU is already doing: promote conservation and mass transit and further subsidize the cost of installing solar and wind energy. That might not sound as hard-nosed as drilling everywhere, polluting groundwater and exposing people to the dangers of transporting a highly explosive fuel, but it is the solution that makes the most economic sense.
The EU model also has the advantage of reducing greenhouse gas emissions and slowing global warming. This is an issue that the tough talkers seem to go out of their way to ignore, but ignoring it will not make global warming go away.
In 30 years, when hundreds of millions of people are suffering from the damage caused by global warming, the tough talkers may want to be able to tell their children and grandchildren about the time they stood up to Putin with their drill-everywhere strategy. The rest of us might prefer to be able to tell future generations about what we did to ensure that we passed along a habitable planet.
Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.
