[GGP] The Politics of Shale Gas in Eastern Europe

A remarkable surge in natural gas production gave the US a triple premium: a significant economic boost; a reduced carbon footprint; and a gain in international security. Replicating the US ‘shale gas revolution’ would benefit particularly eastern Europe, a region troubled with decade-old security of supply woes.

By some estimates of the US Energy Information Agency, Europe sits on roughly 30 years of unconventional gas reserves, a number that has been suggested to be multiple that for Poland, Bulgaria or Romania. Against the backdrop of up to 100% of imports from one single supplier – Russia – this gas was believed to be a potential ‘game changer’ in regional energy geopolitics.

Additional perks would come with lower gas prices giving national economies a much welcomed boost in competitiveness, and lower greenhouse gas emissions. This would not only improve the notoriously bad air quality in some east European metropolitan areas, but also help to meet stringent EU climate goals.

Unsurprisingly, governments from the Black Sea to the Baltic Sea were keen to bring in global energy corporations such as the US majors Chevron or ExxonMobil, and with them their financial clout, their managerial knowledge, and their fracking technology.

Yet the high hopes did not materialise. All the majors that had flocked into eastern Europe had left it again by 2015, which effectively put on hold shale gas exploration. As argued in my new book on the politics of shale gas in Eastern Europe, it is not necessarily the disappointing geology that made Chevron et al. shy away from fracturing east European rocks. Rather, it was an adverse regulatory environment, not made fit for the purpose of fracking, a novel energy technology; and a policy process that alienated stakeholders rather than aligning them behind governmental policies. Soft international gas markets did not help either, of course.

So what went wrong? For one, most countries across eastern Europe struggled with the mundane public policy of shale gas, which ideally would comprise well-designed procedures, clear-cut policy oversight, and joined-up thinking by all the regulatory bodies involved.

Evidence from Bulgaria, Romania or Poland suggests that authorities involved in shale gas matters were not communicating, and relevant procedures suffered from poor administration. Top-down processes prevailed, leaving little room for participation by major socio-economic stakeholders, and dialogue was the exception rather than the norm.

As a corollary, policy decisions on fracking, a highly contested technology for its potential environmental impact, also remained opaque. This sparked resistance among the population and raised allegations of professional misconduct on part of the political elite. As a result, protests erupted in Bulgaria and Romania but also other countries in the region, either ending up in a ban on fracking or leading to shale gas policy agendas being shelved for the time being.

But what mattered, too, was the complex political economy characterising the domestic gas industry. It is not only Russia that stands to lose market share in an emerging shale gale (and was therefore alleged to having sparked local resistance against fracking). It is also domestic incumbents, many of which are state-owned energy monopolists with a clear interest in defending their position against foreign companies and the novel technology they bring in.

As my findings reveal, there is one country that stands out, however: Poland. To be sure, the country isn’t much of a success story either when judged by the number of exploration wells (or actual output). As in Bulgaria, Romania or the Baltic states the majors left, and ended Polish dreams of becoming a ‘second Norway’  any time soon. But the government managed to make the country’s major energy players, including heavyweight PGNiG, stakeholders in domestic shale development.

Relevant regulatory bodies, including environmental agencies, developed strong policy ownership which helped the cause. Municipalities saw potential economic benefit due to them retaining a significant share in potential tax revenue. And regulatory processes remained if not necessarily well-designed then at least open and transparent enough to ensure the buy-in of local communities. A shale tax law came late, and saw much criticism, but is in place and sets the framework. As a result, Poland remains legally open to shale, and socio-economic stakeholders committed.

This leaves two major take-aways from the east European shale conundrum. First, as per the EU treaty, member states decide on their energy mix and supply structure, which will bring the ‘shale question’ back once the market conditions are favourable and investors have enough risk appetite to give it another go.

It may not necessarily be international majors that will be at the forefront here, but mid-sized companies, possibly in conjunction with domestic players. Extraction may not be large-scale, but enough to provide a learning curve. Rather than focusing on how much unconventional gas is produced, it is therefore worth understanding why some countries establish pertinent policies and domestic support for it whilst others fail.

Second, energy policy is not necessarily a matter of ‘objective’ policy imperatives, such as a lopsided dependence on Russian gas imports. Instead, it is the result of complex domestic policy dynamics, and often a function of the material interests of potential winners and losers. The east European shale story therefore drives the point home that it may make little sense to discuss the grand geopolitics of energy without properly embedding them in domestic policy contexts – an insight that it might be worth taking on board for generating feasible policy recommendations going forward.

Author: Andreas Goldthau, Professor of International Relations, Royal Holloway, University of London; author of The politics of shale gas in Eastern Europe. Energy security, contested technologies and the social license to frack. Cambridge University Press. 2018.

The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.