Old Friends, New Partners: US and Germany in the Golden Age of Natural Gas
There is a new trans-Atlantic partnership budding between Washington and Berlin, one based on a mutual interest in energy security and securing adequate supplies of what will be the leading fuel powering their economies in the 21st Century: natural gas.
The shale gas revolution in the United States is already transforming America’s energy picture and economy. New technologies, like hydraulic fracturing and horizontal drilling, have opened gas deposits in the U.S. that were previously inaccessible. In 2012, U.S. natural gas output was 25% higher than it was five years ago, an all-time record.
In the process, the shale gas revolution promises to boost the competitiveness of the U.S economy, create three million direct and indirect new jobs, and bring manufacturing back to America where unit production costs are down by 11%, in comparison with ten years ago. The U.S. could soon become an exporter of liquefied natural gas.
Across the Atlantic, Germany is backing a European Union led drive to open a so-called Southern Gas Corridor that would import new gas supplies from Azerbaijan and the Caspian region, easing Europe’s current overdependence on Russian gas. The plan calls for tens of billions of euros to be invested in new infrastructure projects, including massive new pipelines to bring the gas to Germany’s energy-hungry industries.
The U.S. and Germany share a common agenda in this new age of natural gas—which the Paris-based International Energy Agency says will become the number one fuel in the world energy mix this century--and their fates are intertwined.
Like Berlin, the U.S. is also keen to have Europe—its leading trade partner--weaned from Russia’s energy grasp. And one of the first priorities of President Barack Obama’s second term will be to exercise a foreign policy that ensures Azerbaijani gas supplies now--and more Caspian quantities in the future--will flow unimpeded to Western Europe via the Southern Gas Corridor.
On a commercial level, Berlin, in tandem with Paris and Brussels, is investing in new natural gas infrastructure, including the construction of pipelines like the Trans Anatolian Pipeline (TANAP), Nabucco West and Trans Adriatic Pipeline (TAP), to bring Azeri gas westwards.
The total upstream and downstream investment associated with Azerbaijan’s giant Shah Deniz gas field—which will kick off a new phase in its development later this year--is estimated to be in excess of $45 billion for the production and transportation of the gas. Those infrastructure projects will provide rich contracts for both European and American companies for years to come.
In the future, the U.S. could also contribute to Europe’s energy security by exporting its new gas bounty to the EU--much of it likely transported on EU-owned ships. While Europe’s efforts to gradually exploit its own shale gas reserves may well rely on the expertise that American companies are now quickly acquiring.
A budding U.S.-German energy alliance comes amid a shifting balance of power within Europe itself. German influence within the EU has grown as a result of Berlin’s leadership in the eurozone crisis. Its economic clout has grown too: Germany’s economy is now both the biggest and most competitive in Europe. At the same time the UK—once the special partner of the U.S. in Europe—is seeing its role decline. After the recent decision of British Prime Minister David Cameron to hold a referendum on the country’s future inside Europe, the UK’s influence in the EU is now in free fall—and with potential implications for Europe’s energy policy.
Germany and France did not welcome this latest initiative from the British Prime Minister. Nor has the U.S., with the White House underscoring in a recent statement that “the United States values a strong UK in a strong European Union, which makes critical contributions to peace, prosperity, and security in Europe and around the world.”
Last month, Philip Gordon, the U.S. Assistant Secretary of State for European and Eurasian Affairs, made clear in remarks that the EU needs to speak with “a single voice,” a comment that was strongly condemned by several Conservative members of parliament in the UK, and sparked widespread outrage in the British press.
But as the West scrambles to secure energy supplies for the century ahead, neither Berlin nor Washington will wait for the UK to make up its mind about Europe and get over this latest identity crisis. As London fiddles with partisan and nationalist politics, big emerging economies like Russia and China are already competing for gas supplies globally and the competitiveness of Western economies is at risk if it loses a step in that race. There is no doubt that between now and the time of the referendum, the UK’s influence to Europe will only diminish further.
Meanwhile, Germany looks poised to step into the gap, and the U.S. should not hesitate to develop a closer and stronger partnership with Berlin in pursuit of energy security. Today, Germany, with its determination to secure the stability of the eurozone, its highly competitive economy, and its commitment to strengthening Europe’s energy security, is by far the strongest partner for the U.S. in Europe.
U.S. Secretary of State Henry Kissinger once famously remarked: “Who do I call if I want to speak to Europe?” The answer, it appears, will be a phone number starting with +49, the area code for Germany.
Anthony Livanios is chief executive of Energy Stream CMG GmbH, an international oil and gas advisory firm based in Frankfurt, Germany and Washington, DC.