Massive deposits of shale gas are now potentially accessible thanks to the development of innovative extraction technologies like fracking and deepwater drilling. Despite some clear negatives—namely water and air pollution near production sites, the risks of deepwater drilling, and political opposition to fracking at the local level in the United States and throughout Europe—the promise of plentiful and inexpensive energy combined with the environmental benefits of burning natural gas rather than coal or oil create powerful incentives to develop natural gas production and transit capacity around the globe. What are the geopolitical consequences of these activities? In the economic realm, increased supplies and lower prices are reducing the effects of the “resource curse” for energy exporters while providing a potential financial boon for recipient and transit countries. In the security realm, we see a rise in the strategic importance of transit countries and an evolution of the security dilemma associated with the development and protection of energy transport infrastructure.
Access to shale deposits is more likely to generate a “resource blessing” rather than the “resource curse” that has haunted so many oil exporters in the past. Countries with an abundance of non-renewable resources often become over-dependent on commodity exports while government corruption tends to evolve around resources that can be centrally controlled. Under these combined effects, other industries suffer from both unbalanced regulation and a tendency for the national currency to become overvalued as demand for oil or other primary commodity exports grows. Natural gas has several characteristics that counteract these effects. In source countries, its abundance is driving energy prices down rather than up, with extraordinary stimulative effects on the economy. While estimates on this positive spillover effect vary, NPR recently reported that “for every penny you drop the price [of energy] and keep it there for a year, you’ve increased American spending power by $1.4 billion.” Natural gas deposits are also widely dispersed and the gas itself is difficult to transport. Combined, these characteristics make it less likely that a single company would be able to control the supply chain, thus lowering the likelihood of corruption. The lack of transit infrastructure in many locations provides time for global energy markets to adjust—thus avoiding shocks—while also providing a positive spillover effect to local communities by necessitating the construction of pipelines and liquid natural gas (LNG) facilities and by dramatically increasing demand for rail and other intermediate forms of transportation. The combined benefit of economic stimulus and reduced energy prices is one reason why the United States has been recovering faster than its European counterparts from the 2008 financial crisis. Transit countries are able to further benefit by extracting transport rents once the pipelines are operational. By developing local sources of natural gas, several of the world’s largest polluters—such as the United States, China, and India – will be able to continue to grow economically while simultaneously reducing their emissions. While the rise of local and diversified sources of energy could hurt traditional exports of oil or coal, many of them—including Algeria, Iran, Nigeria, Qatar, and Russia—also have large natural gas reserves.
The energy revolution is transforming the security dilemma by shifting the focus of concern away from source and recipient countries and towards transit countries. For energy importers, the diversification of suppliers of oil and gas has the security benefit of decreasing dependence on imports from specific countries and reducing the security vulnerabilities this dependence generates. At the time of discovery, transportation difficulties (including limited pipelines and insufficient maritime transport for LNG) prevent new source countries from using natural gas as an inducement or threat against other states with which they do not share infrastructural connectivity. For example, while Russia could threaten to cut off the flow of gas to Europe through pre-existing pipelines in retaliation for Western sanctions related to the Ukraine crisis, Russia would be unable to threaten the United States in the same way, nor could the United States use its new gas abundance to reduce Europe’s vulnerability to such a Russian threat. Consequently, through the diversification of energy sources and the prospect for domestic development, natural gas has the potential to reduce security vulnerabilities by decreasing both energy dependence and the potential for a security dilemma created by increased energy consumption and wealth.
Transit countries are not so lucky. Pictures from Ukraine showing exposed gas pipelines near the recent fighting provide vivid reminders that while infrastructure takes time to build, it can be quickly and easily destroyed. Transit countries have strong incentives to protect gas infrastructure. The transit fees enable these countries to respond to those motivations more than would otherwise be the case. The capabilities needed to build a strong defensive structure around pipelines, ports, or rail systems may provide the state with an offensive military capacity it would not otherwise possess. Such developments could appear threatening to neighbors, thus generating a security dilemma dynamic.
Source and recipient countries are likely to be drawn into conflicts with transit countries. Though the initial lack of infrastructure will delay the effect of the energy glut on global market prices, the prospect that future export income is likely to go down may motivate existing energy exporters to vertically integrate—that is, to take control of the distribution network (i.e., the transit countries)—before their economic and military power decline. Consider Russian actions in Georgia and Ukraine: the Russian invasion of Georgia and recent support for Ukrainian rebels both began after the outbreak of armed conflict between separatist groups and the national governments, threatening the stability of each country and their natural gas pipelines that carry Azerbaijani and Russian gas, respectively, to Western Europe. At the same time, the possibility that transit countries could turn off the tap may also motivate recipient countries, particularly those who are unable to diversify their import sources, to intervene to prevent supply line manipulation or to bolster transit country efforts to protect their infrastructure from potential threats. In this way, the energy revolution is increasing the vulnerability and security dilemma dynamics associated with transit countries.
So where will energy-related wars take place in the 21st century? Not in the United States, Russia, or China. Each is likely to develop its shale reserves. Pending a change in national policies, it is also unlikely to take place in Western Europe. Instead, energy-related war is most likely to occur in countries that either have or are developing the infrastructural capacity to serve as transit countries. In addition to Ukraine, the most likely candidates include Algeria, Belarus, Bulgaria, Niger, and Turkey.
In sum, natural gas has the potential to provide a resource blessing by lowering market prices, increasing diversity of supply, and creating positive economic spillovers for other sectors of the economy. The time-intensive and capital-intensive nature of expanding natural gas transportation infrastructure plays a central role in energy geopolitics by providing some time for markets to adjust and for strategic maneuvering by source, recipient and transit countries. On the other hand, the vulnerability of this infrastructure renders transit countries insecure. Transit-country efforts to bolster their security combined with their ability to cut off the tap make them more threatening to their neighbors, thus potentially sparking regional military buildups or pre-emptive actions by wary supplier or recipient countries. In this way, increased access to natural gas reserves is changing energy geopolitics. While the future is unknown, these changes suggest that transit countries will increasingly become the focal points of energy security: Cave Hic Dragones!