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Europe must wean itself off Russian gas. Start in Lancashire

    Today’s decision by Lancashire County Council to block shale gas exploration at the Preston New Road site is a terrible mistake. The economic, environmental and geopolitical arguments are overwhelmingly in favour of fracking. Shale gas could provide thousands of jobs, boost productivity, increase our energy security and all at a negligible risk to the environment. Today the anti-fracking activists have won but they must not be allowed to prevail. The Government should consider seriously reducing the planning restrictions which inhibit even basic exploratory drilling.

    Whilst the crisis in Ukraine is not about energy, the dependency of Europe on Russia for oil and gas imports gives Putin significant leverage. In 2013 Russia was the source of 39% of the EU’s natural gas imports and 27% and of its gas consumption. One third of the EU’s imports of crude oil and oil products are also from Russia. This level of energy dependency hides significant variation across different countries. For example, Bulgaria, Estonia, Finland, Slovakia, Latvia and Lithuania are dependent on Russia for 100% of their gas imports; although Finland for example does have the capability to insulate itself from Russian action in this ara. There is an element of “mutual interdependence” as Russia relies on fossil fuel exports for half of its state revenues and 71% of its gas exports go to Europe. However, Russia retains the bargaining power as it can last for much longer in the absence of revenue than European nations can without energy.

    The UK has in recent years also been suffering from deteriorating energy security. Through the state-owned Gazprom, Russia has exercised this power before in 2006 and 2009 and currently charges Poland 40% more for gas than it does Germany. Over the last year, Russia has regularly threatened to cut gas supplies to Ukraine. This energy dependency has made many European nations more reluctant to challenge Russian aggression and acts as a weapon for Putin to bully Ukraine and others. Whilst improved storage and distribution infrastructure within Europe has blunted this tool, it remains a strategic weakness.

    Reducing energy dependency on Russia will largely entail gas import diversification. In particular, more Liquefied Natural Gas terminals in Poland, Lithuania and Croatia should lead to more import options. Whilst there are still problems to overcome, the Southern Gas corridor which bypasses Russia could also be a longer term way to boost import diversification. The EU’s new proposals for a Single Market for energy deserve scrutiny and have the potential to boost energy infrastructure and investment through more interconnectors and reverse-flow capacities.

    European nations should also embrace renewed domestic production. Whilst shale gas is no panacea, it is nonsensical that so many European countries have maintained their exploration bans. More generally, vulnerable nations should continue to build their gas stocks and alternative supplies. Nevertheless, the long contract durations with Gazprom and the time it would take to reduce dependency on Russia as well as the possibility that alternative supplies will be more expensive means that Europe must now start to implement measures to improve its energy security in the long term. The Bowland shale formation below Lancashire is a good place to start.

    Adam joined the Centre for Policy Studies as Head of Economic Research in January 2014. 

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