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Doug Schoen: U.S. Must Use Its Oil Weapon Against Putin

Image: Doug Schoen: U.S. Must Use Its Oil Weapon Against Putin
"Putin on the March: The Russian President's Unchecked Global Advance" by Douglass E. Schoen [Encounter Books]

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Tuesday, 14 Nov 2017 06:39 PM Current | Bio | Archive

Perhaps best known for his incisive analysis of U.S. politics, Democratic pollster and Fox News Contributor Douglas E. Schoen usually focuses his attention on U.S. domestic affairs. But Russian strongman Vladimir Putin's global drive to reclaim his country's lost empire -- by force if necessary – left Schoen compelled to turn his analytical eye to events abroad.

His 2016 volume "Putin's Master Plan" revealed Putin's scheme to exploit every vulnerability a complacent West would permit. If anything since then, Putin's global land grab has only accelerated.

In response, Schoen now offers a new book, "Putin on the March: The Russian President's Unchecked Global Advance."

It is a clear-eyed assessment of Putin's stunning successes. In this second of three exclusive excerpts provided courtesy of Encounter Books, Schoen lays out his playbook for countering Putin’s global assault on democracy.

An exclusive excerpt from "Putin on the March: The Russian President’s Unchecked Global Advance" by Douglass E. Schoen [Encounter Books]:

The silver bullet in the American arsenal is shale natural gas and the new technology to extract it: hydraulic fracturing, or fracking. The United States, which once produced half the natural gas of Saudi Arabia and Russia, now has the capacity to equal those two nations' output — thanks to fracking.

Before fracking, America had been an also-ran energy player. Now it has a seat at the energy table; it can be a global player in the energy markets. Our leaders should resist the efforts to curtail the production of this vital energy source, which has proved equally as environmentally friendly, if not more beneficial, as other forms of fossil-fuel production. The magic of shale gas comes in its abundance and the relatively cheap cost of extracting it, especially with the improvements in fracking technologies.

As the Financial Times put it: "Just compare an offshore well at $170M with a vertical shale well that costs under $5M, with a five-year payout for a successful deepwater well versus a mere five-month payout for a shale play. And multiply a single, individual shale well by hundreds of wells and hundreds of decisions and you get a new world order."

It has happened quickly. Barely a decade ago, in 2005, the Energy Information Agency predicted the United States would still be importing 25 percent of its gas in 2015; the rocket-like rise of shale gas has put the US in position to be a net exporter of gas by 2017.

The United States is now the world's leading gas producer. The rise of America as a shale-gas power has transformed the world energy market, eroding the power of OPEC, with which the U.S. and Russia now share world leadership; the two countries and the organization currently account for 40 percent of "combined liquids production" worldwide. Before the rise of U.S. shale, gas power in the world was held largely by the members of what was known as the Gas Exporting Countries, or GECF, dominated by Russia, Qatar, and Iran. Russian energy minister Sergey Shmatko called it the "gas OPEC."

Shale gas has also put the United States on a different footing in regard to the Middle East and Russia — and it gives Europe a vital new option, too. The continent, with depleted reserves, has become a major importer of gas, getting about two-thirds of its supply in that fashion; of that amount, Russian gas accounts for about a half. Why would they want to deal with Gazprom, Putin's price gouging, and other machinations if a better alternative exists?

"If the United States opens up the global gas market to unprecedented levels of transparency and competition, which its shale-extracted LNG [liquefied natural gas] exports appear capable of doing," wrote Anthony Fensom in the National Interest, "Russian President Vladimir Putin's influence in the region will further diminish."

Indeed, the United States has all it needs — political leadership remains the wild card — to become the world's energy superpower. Given how much Putin relies on energy economically and diplomatically, that development will be entirely to Moscow's detriment. Its ability to use gas to push around Bulgaria, Romania, Poland, and especially Ukraine, will be seriously eroded.

Further, LNG as a resource is becoming a bigger factor in the world energy market, with more and more countries becoming either importers or exporters of the fuel. For importers, LNG represents an alternate fuel source, often transported via alternate pipelines not controlled by Moscow.

. . . The United States has become an important player in the LNG market. In 2016, we began exporting LNG to Brazil, India, the United Arab Emirates, Argentina, Portugal, Kuwait, Chile, Spain, China, Jordan, and the United Kingdom. The inroads the United States is making into these countries' gas markets represents a direct threat to the Russian presence — and not a moment too soon. Some European countries are still entirely dependent on Moscow for supplies. But in other countries, the impact of LNG is already changing the dynamic with Russia.

In 2014, Lithuania built its own import terminal for natural gas; before that, it had relied on Russia for 100 percent of its gas supply. What impact did the new terminal have?

It allowed Lithuania to negotiate a 20 percent discount on its next contract with Gazprom. In the past, such feats would have been unthinkable: If you pushed back on Gazprom, Gazprom would turn off the spigot (or threaten to). After the introduction of LNG, that threat would not mean as much.

In April 2017, Gary Cohn, director of the White House's National Economic Council, said the Trump administration would move faster on approvals for LNG export terminals — a hopeful sign for the future.

In short, on the gas front, technology and market demand are conspiring against Putin. The marketplace is fundamentally changing, and Russia's gas monopoly in Europe is not likely to survive in its present form. Moscow will always be a power player, but any lessening of its former stranglehold on what basically were, for many years, captive markets will change the economic realities. Gazprom will not be able to play such hardball on contracts, dictating the terms of long-term deals that give recipient countries no negotiability on price or other matters. It will have to make compromises, and those compromises will weaken Russia's ability to "weaponize" gas supplies in pursuit of its foreign policy goals.

Finally, the sanctions against Russia, though Putin has had success in working around them, are also causing some significant pain.

I argued earlier the sanctions alone will not cause Putin to alter his policies, but that does not mean they do not hurt; Moscow unquestionably would like to see them lifted. Along with the drop in crude prices and the changes in the gas market, the sanctions have contributed to a challenging economic climate for Russia. In 2016, the number of Russians living in poverty reached almost 20 million people, more than 13 percent of the population, according to Rosstat, the government's statistical agency.

The Russian economy contracted in 2015 by 3.7 percent and by 0.8 percent in 2016.

Certainly, this contraction stemmed from several factors, including fluctuating fuel prices and the growing competition in the gas sector, but it is also likely the sanctions have played a role. It is difficult to quantify their effect, but in 2015 the IMF estimated U.S. and European sanctions against Russia for its actions against Ukraine might have reduced Russian short-term economic output by as much as 1.5 percent.

Even Putin himself admitted, in 2016, the sanctions have affected Russia.

"Sanctions are hurting us," he said at an investment forum. "We hear that they are not a problem really, but they are, particularly with technology transfers in oil and gas. We are coping."

Putin is the global expert at coping. He has taken a nation with a struggling economy, stagnant population growth, and an energy advantage whose best days are probably past and used his strategic political vision and sheer force of will to give Russia a global influence out of proportion with those liabilities. Whether wrestling with the sanctions or the growing competitiveness of the energy sector, Putin will surely adapt, exploit opportunities, and play his special brand of geopolitical poker.

But when it comes to the energy sector, and particularly to natural gas, the Western democracies — especially the United States — are well positioned to thwart him.

Next: The third and final exclusive excerpt from Doug Schoen's new book, "Putin on the March: The Russian President's Unchecked Global Advance": How the United States can up the ante in Putin's cyberwar by launching a few "logic bombs" of its own.

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Doug Schoen now offers a new book, "Putin on the March: The Russian President's Unchecked Global Advance." It is a clear-eyed assessment of Putin's stunning successes.
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Tuesday, 14 Nov 2017 06:39 PM
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