Without reverting to Cold War rhetoric, I think it is safe to say that America’s previous rival for world leader has returned. Russia and President Vladimir Putin are increasingly flexing their muscles in world affairs.
Putin’s role as a broker between the Assad regime and President Barack Obama may yet prove to be useful, but one cannot help but think he has an ulterior motive. Putin obviously is vying for position and prestige in today‘s volatile global economy and political environment.
How can the country that was virtually bankrupt when the Berlin Wall was torn down in 1989 return to a position of economic and geopolitical strength among traditional and growing market powers so soon? Mr. Putin devised a plan based upon what is believed to be the nation’s almost limitless supply of gas and oil.
His political control of Russian energy sources was well orchestrated. Putin first expanded the supply of natural gas to the Ukraine and several other former Soviet Union satellites. Then in the winters of 2006 and 2009, he cut them off, eventually extracting significant price increases from these newly independent countries. Putin later wrestled away government control of Russia’s gas and oil resources from Yukos, Russia’s major oil company, by convicting its CEO Mikhail Khodorkovsky of tax fraud.
The indictment brought an abrupt end to discussions Yukos was having with ExxonMobil and Chevron regarding joint exploration and refining alliances.
With the Putin-led government in direct control of most of Russia’s energy resources, he became a true energy czar by successfully taking direct control over the long-term contracts and management of the energy industry. Control of the energy industry is vital to the Kremlin’s patronage system, according to Bloomberg Magazine. It was also vital to Putin’s plan to make other countries in Eastern Europe and eventually the West increasingly dependent upon Russian gas and oil. In essence, he wanted to supplant the West’s decreasing gas and oil supply with Russia’s rapidly developing energy resources.
Putin and his strategists, though, did not anticipate a significant increase in U.S. gas and oil production generated by horizontal drilling and hydraulic fracking. With regard to oil output alone, “the growth in the U.S. fracking industry in the past five years has been equivalent to a non-OPEC country appearing in North Dakota,” according to Daniel Yergin of the consulting firm HIS. This increased supply of oil in the U.S. upset Putin’s plans considerably.
Another key factor in the demise of the Russian plan – and more relevant to our region – is the U.S. is on track to add 2 trillion cubic feet per year of natural gas to the energy market. This represents an 8 percent increase in total U.S. capacity based on initial 2012 production estimates.
The expanding domestic supply of natural gas has put a damper on Russian plans to keep its prices high. As U.S. electric generating plants shifted to gas from coal burning operations, our nation shipped its excess coal to Europe, where it is now competing with Russian coal. In fact, the U.S. may supplant Russia as the world’s third largest coal producing country.
This complex set of supply-and-demand issues has placed Russia in a precarious position in regard to its overall economic strategy. As a region replete with natural gas reserves, we in Northeastern Pennsylvania play a vital role in staving off Putin’s plans to increase Russian dominance in the energy market and, therefore, be able to raise energy prices. This development is important because free and balanced trade among nations can best be insured by many supplies chasing many buyers. All of us certainly understand how dependence on foreign energy can cause international conflicts that can have catastrophic conclusions.
Northeastern Pennsylvania is making the world a safer place by producing a cleaner burning fuel to protect the environment and by staving off the Middle East and now Russia from dominating the energy market.
Michael A. MacDowell is a former economics professor, the retired president of Misericordia University in Dallas Township, and is the managing director of the Calvin K. Kazanjian Economics Foundation. He is a resident of Harveys Lake.