Kate Mackenzie The magic words: ‘shale gas’ hits the diplomatic circuit

Shale gas excitement seems to be spreading everywhere. Gideon Rachman, the FT’s foreign affairs commentator, describes how he has been cornered more than once at international conferences (not energy-focused conferences, we suspect) by someone declaring the importance of shale gas.

He likens it to the scene in The Graduate in which Dustin Hoffman’s character is given the prosaic advice: ‘plastics’.

The excitement in the US is understandable; the production of shale gas does appear to be having a big effect on gas production there, just a few years after the technology to extract it became accessible. But Rachman has found a lot of excitement in China and particularly Europe. This might seem odd given that there are still big questions about the extent and recoverability of Europe’s shale gas reserves. But as Rachman explains, Europe is hoping to benefit from the US shale gas boom through increased access to LNG which was previously destined for the US — reducing dependence on Russian gas. And most interestingly, he writes that it is already being felt in diplomatic circles:

In recent months, western officials have noticed a distinctly more friendly tone in their dealings with Russia. The Russians have signed a new nuclear arms reduction treaty with the US, accepted the idea of tougher sanctions on Iran and responded to the air crash on Russian soil that killed the Polish president and his entourage with unexpected openness and sensitivity.

Some western officials attribute this change in tone in the Kremlin to the US altering its position on missile defence; others credit the growing influence of President Dmitry Medvedev. But some think that Russia is already adapting its foreign policy in response to the sharp fall in the price of gas and the shift on world energy markets.

Gazprom has famously rubbished shale gas, claiming it is not a threat and that environmental concerns will create a problem for the extraction technology. It seems however, that Russia is worried. But is the country — and the EU for that matter  –  jumping the gun on shale gas? Although it seems unlikely to stand in the way of the already fast-growing US industry, it is fair to say that the jury is not completely out on shale gas; a big EPA review is under way and the industry attracted Congressional scrutiny earlier this year.

Even if shale gas doesn’t pose a problem for Russia’s role as the dominant gas supplier in Europe, there might be other issues. Steve LeVine listed in March a ‘trifecta’ of threats to Gazprom, including shale gas, Qatar’s LNG efforts, and a new gas pipeline connecting China to Turkmenistan, a rival producer.  Meanwhile the FT points out another hindrance: ructions within the Russian gas industry itself.

Perhaps it’s not so surprising that the diplomatic mood has already turned.

Related links:

Where the European shale gas plays are - FT Energy Source