Saving Europe with Natural Gas

Courtesy CartoonStock.com

On New Year’s Day, 2009, a dispute over payment between Russia and Ukraine led to Russia cutting off all Ukraine bound gas, which included 25 percent of the European Union’s gas supply.1 To make things worse, Europe was in the middle of an especially harsh winter. Even though most countries had prepared for a gas shortage by stockpiling natural gas, their efforts were not enough, as few European countries had more than a month’s worth of reserves, and many lacked any reserves. The crisis hit Europe hard: Bulgaria was forced to shut off industrial production to save fuel for heating, thousands lost heating and electricity, and tiny Slovakia even declared a national state of emergency.1
This is not an isolated event. Russia has halted Europe’s gas supply in 1999, 2006, 2009, and 2012, each time in the dead of winter. The 2009 shortage cost €1 billion in Ireland alone2, and the 2012 shortage caused 650 deaths in Central and Eastern Europe.3 Although the EU as a whole gets only 31 percent of its gas from Russia, many Eastern European countries get 90-100 percent of their gas through Ukraine, and Germany, the EU’s de facto leader, gets 42 percent.4 Besides denying thousands of people heat for the homes and offices and severely injuring economies, these gas crises have broader geopolitical implications. Ukraine gave half the ownership of its gas pipeline, its biggest source of revenue, over to Gazprom (the Russian state-owned energy agency) after the 2009 crisis. Further, Russia took over most Ukrainian mines and power stations, has sent in many Gazprom security police to guard the pipeline (actually heavily armed soldiers and drones), boosted cooperation between Russian and Ukrainian defense ministries, has secured not only a more favorable Ukrainian government but also a much longer lease on its critical Black Sea base in Sevastopol, and, most ominously, has begun implementing political reforms in Ukraine to make Ukraine more like Russia. Russia has also exploited the total reliance of Eastern Europe on Gazprom’s natural gas in mid-2009 when it set up a number of security and economic alliances that heavily favored Russia (think Warsaw Pact part II).5 When Turkey lost 67 percent of its gas in 2009, it cozied up to Iran to get gas from them. Turkey helped Iran build a major pipeline through Turkey, a pipeline that until very recently continued to operate despite sanctions on Iran.
Further, Russia is not nearly as dependent on the EU as the EU is on Russia. Russia is building new pipelines to China and the Koreas, and has recently completed pipelines to China in 2010, and to Turkey and the Caucus region in 2006.6, 7, 8 Demand from Turkey and China nearly equals demand from Europe,8 meaning that Russia can make up lost gas revenues from Europe by simply increasing gas supply to other countries.
Europe’s reliance on Russian gas stems largely from the fact that Europe has little gas of its own. However, it seems puzzling that European nations continue to rely on authoritarian and unpredictable Russia in light of recent events in the gas market. 2011 was a record year for U.S. natural gas production, which now outstrips domestic demand by 119 billion cubic meters.9 This is excess is far greater than European demand, which currently amounts to 65 billion cubic meters.1 American shale gas is cheap, too: it is at the lowest price in a decade. This boom and low price is largely attributable to recent advances in shale-gas mining techniques that have opened up billions of cubic meters of gas up to drilling.10 Exporting this excess gas to Eastern Europe would be beneficial for gas companies and U.S. foreign relations: gas companies would make greater profits while the U.S. would keep Eastern Europe out of Russia’s sphere of influence. Further, Europeans citizens would benefit from U.S. gas: American natural gas costs $30 per 1,000 cubic meters11, while Russian gas shipped to Western Europe costs $500 per 1,000 cubic meters and gas shipped through Ukraine costs $250 per 1,000 cubic meters.12 If natural gas prices were lowered this dramatically, Europe’s economic recovery would speed up rapidly.

 
So what is it that stops the U.S. from exporting more gas to Europe? As usual, the answer is money. Natural gas must undergo an expensive liquefaction process before sea transport, while it can be left in its natural gaseous state for pipeline transport. Further, after a sea journey, natural gas must be regassified, a process that can only be done at expensive terminals that usually cost more than $1 billion13 to build.
In the long run, it is worthwhile to make investments in building regasification terminals in Eastern Europe because the expected monetary payoff to gas companies and political payoff to the U.S. government is so great. In the short term, however, stop gap measures must be taken. The U.S. can assist European nations in acquiring machines called floating regasification and storage units (FSRUs), natural gas tankers converted to serve as regasification terminals. FSRUs can be leased for an average of $70 million per year, an inexpensive price considering that one FSRU can regassify 3.4 billion cubic meters of natural gas, or 125 percent of Lithuania’s natural gas consumption. FSRUs are also much quicker to build than regasification terminals. Already, Lithuania, one of the first European countries to lease an FSRU, has seen its negotiating power with the Russian leadership increase after it leased its FSRU earlier this year.14
To do its part, Europe can start developing its own shale gas reserves and diversifying its gas sources. The EU sits on 2.168 trillion cubic meters14 of accessible natural gas. If the EU were to build facilities for extracting this gas, it could hypothetically eliminate the need for foreign supplies of gas. Further, the EU could turn to other sources of gas, such as Qatar or Mozambique, both of which have made enormous natural gas discoveries recently.15
The process of weaning Europe off of Russia’s teat may be dirty and expensive. But the end result, a steep drop in Russian influence in Europe, particularly Eastern Europe, will be enormously valuable from a geopolitical standpoint. Once Russian influence is no more in Europe, true integration of Eastern Europe into the EU and the Schengen Area can begin, which will further bolster the EU and make it an effective counterweight to Russia. This would be particularly beneficial for the U.S., which has a prime opportunity to accelerate the recovery by bolstering the natural gas industry and to weaken its old foe. America would be a fool not to take it.








 Citations
1.. "FACTBOX - 18 countries affected by Russia-Ukraine gas row." Reuters 7 Jan. 2009:
    n. pag. Web. 13 Apr. 2012.
"Natural gas shortages slam many European nations." Tuscon Citizen 7 Jan. 2009: n. pag. Web. 13 Apr. 2012. .
2. Leahy, Eimear & Devitt, Conor & Lyons, Seán & Tol, Richard S. J., 2011. "The Cost of Natural Gas Shortages in Ireland, "WP397, Economic and Social Research Institute (ESRI).
3. Murray, Alina. "Cold Weather Snap in Eastern Europe Kills More Than 650." MSNBC 2 Feb. 2012: n. pag. MSNBC. Web. 13 Apr. 2012.
4.European Union. EU-Russian Gas Relations in Perspective: Challenges and Opportunities. N.p.: European Dialogue, 2012. European Dialogue. Web. 13 Apr. 2012. . 
5. United States. U.S. Army. Russian Influence on Ukrainian Strategic Policy. By Defek G.
    Webb. Charleston, SC: U.S. Army, 2011. Print. 
6. Stnagarone, Troy. "Russia's North Korea Gas Deal." The Diplomat 15 Nov. 2011: n. pag. New Leader Forum. Web. 13 Apr. 2012. . 
7. British Petroleum. “Southern Caucasus Pipeline overview."
8. Reuters. "New Russian pipeline replaces oil by rail." Global Times 10 Dec. 2010: n. pag. Global Times: Discover China Discover the World. Web. 13 Apr. 2012.. 
9. United States. Energy Information Administration. Natural Gas Overview. N.p.: Energy Information Administration, 2012. Department of Energy. Web. 13 Apr. 2012. 
10. Osborne, Andrew. "Why natural gas is cheap and gasoline isn’t." New York Times 30 Mar. 2012: n. pag. NYT. Web. 13 Apr. 2012. .
11.United States. Energy Information Administration. Quantity and Average Price of Natural Gas Production in the United States, 1930-2000. N.p.: Energy Information Administration, 2000. Department of Energy. Web. 13 Apr. 2012. . 
12. Osborne, Andrew. "Russia Firm Cuts Gas to Ukraine, But EU Hit Is Cushioned ." Wall Street Journal 2 Jan. 2009: n. pag. WSJ. Web. 13 Apr. 2012. .
13. "Lithuania leveraging a new LNG technology." STRATFOR 8 Mar. 2012: n. pag. Web. 13 Apr. 2012.
14. "European Union." CIA World Factbook. CIA, 2 Apr. 2012. Web. 3 Apr. 2012.
15.LeVine, Steve. " For Alaska (and Qatar and Mozambique and Russia) China is the hub of hope." Foreign Policy 12 Apr. 2012: n. pag. Foreign Policy. Web. 13 Apr. 2012.

U.S. Navy and small craft: Part I

Every few years, the naval brass fret about a new supposedly unbeatable threat to U.S. naval supremacy. In the late '90s, it was diesel-electric submarines. In the last decade, it was Chinese anti-shipping missiles. And right now, the fear of the moment is Iranian small craft. Much of this fear was sparked by a highly-publicized 2002 war game that predicted that the Navy would lose catastrophically in a battle with Iranian small craft. While the methodology of said war game is dubious (see my earlier post on Iran), something still needs to be done to improve the capabilities of the Navy in combating small craft.

It is always prudent to consult history, particularly here. Small warships are as old as naval combat itself, but until recently, small vessels were unable to challenge larger ships because they lacked sufficient stability and freeboard to sail in the ocean, as well as sufficient firepower to even dent the armor of larger vessels, they posed no threat to large surface combatants. This changed in 1866 by the invention of the torpedo, which allowed small boats to successfully defeat much larger battleships. The subsequent introduction of the torpedo boat in 1877 created a panic in naval circles since it was believed that swarms of torpedo boats would allow tiny nations to lay waste to huge, expensive fleets, forever upsetting the balance of power. However, as Mahan observed, these boats were akin to fire-ships in that they were effective at striking fear into the enemy but not very effective at sinking ships. Torpedo boats suffered from the same fates as earlier small craft, plus some new ones: they were dangerous in open waters, had short ranges, could only engage enemy ships effectively at short ranges (at which point they would be ripped up by low-caliber guns), and were too small to carry advanced aiming devices or range finders, a fault that doomed them to inaccuracy. Indeed, early torpedo boats were almost total failures: torpedoes boats in the Russo-Japanese war only sunk one ship that had already been rendered crippled and immobile by battleship fire, and improved torpedo boats in WWI still only sunk one cruiser in the entire war. The destroyer, originally built to defend fleets against the torpedo boat, had largely replaced the torpedo boat by WWI since destroyers were more seaworthy, had a longer range, carried better detection equipment and, most importantly, had guns and depth charges to provide adequate defenses against submarines, aircraft, and surface ships. This trend continued through WWII, where torpedo boats were hampered by increased fleet speeds (which denied torpedo boats the speed and agility advantage they had long relied on) and long-range patrol aircraft, which could detect and defeat torpedo boats before they even came close to an enemy fleet.

Postwar, small vessels again underwent a renaissance. The invention of the guided missile, coupling with the shrinking of electronics, particularly radar, gave rise to the missile boat, a type of fast, short range boat designed to sink larger ships with swarm tactics and then escape speedily. Some larger missile boats could even carry close in weapons systems (CIWS) to defend against enemy missiles and SAMs to protect against aircraft, which ought to have taken away the main liability of torpedo boats: their extreme vulnerability. Initially, it looked as if missile boats were the huge threats that torpedo boats were supposed to be. This is illustrated by several events, especially the famous sinking of the Israeli frigate Eilat by an Egyptian Osa-class missile boat in 1967; the destruction of four Pakistani ships, including a destroyer and two large merchantmen, by Indian missile boats in 1971; and the sinking of five Syrian missile boats by six Israeli missile boats at the Battle of Latakia (the first battle between two fleets of missile boats) in 1973. However, it must be borne in mind that in all three of these engagements, the losers were primarily obsolete ships that lacked defensive countermeasures. The effectiveness of countermeasures, particularly CIWS guns and missiles, has been well demonstrated: the successful use of electronic countermeasures and chaff by the Israelis at Latakia and the effective use of CIWS missiles to defeat anti-ship missiles by the Royal Navy in the Falklands War provide two good examples. Finally, missile boats are still extraordinarily vulnerable to attacks from aircraft and surface ships. To wit, NATO helicopters made short work of the Iraqi Navy's missile craft in the Gulf War, and the U.S. Navy destroyed three Iranian speedboats and one Iranian gunship with aircraft and ship launched missiles in Operation Praying Mantis while taking no casualties.

So the threat posed by Iranian speedboats may not be so dire after all. However, the fact that Iranian speedboats could potentially pose a threat means that the U.S. Navy must create a means by which to defeat this threat. A strategy for defeating Iranian missile boats must be both offensive and defensive: that is, the Navy must be able to both sink Iranian boats and defend itself against attacks by them.

The offensive aspect of fighting Iranian boats is mostly already taken care of. Combat air patrol can be expected to detect incoming Iranian craft and fire on them. However, because Iranian missile boats are small and fairly stealthy, they may be difficult to detect from high altitudes. Thus, it would be prudent to devote a small portion of a carrier's combat air patrol to low-altitude searches for Iranian boats. As the success of helicopter operations against Iraqi missile boats in the Gulf War demonstrates, helicopters can provide a valuable defense against missile boats. However, a helicopter is useless if it is not armed, so the Navy must have its anti-submarine and patrol helicopters carry some kind of light anti-ship missile such as the AGM-65 Maverick (I choose the Maverick because it is currently in U.S. Navy inventory and since its effectiveness against small craft was already demonstrated in the Gulf War) while in the Persian Gulf. Further, surface ships can effectively defeat missile boats using their light guns and anti-aircraft missiles. However, surface ships are useless if they do not detect Iranian craft, so it must be ensured that all Navy ships are equipped with the very latest sensors, and that these sensors are always on.

The main area of concern regarding Iranian missile boats is defense. U.S. Navy vessels are equipped with highly advanced CIWS and electronic countermeasures, which ought to provide adequate defenses against Iranian boats. All Navy ships ought to be equipped with these CIWS guns and electronic countermeasures (ECM). Some ships that currently carry CIWS and ECM ought to carry more of it, particularly the Arleigh Burke flight IIa destroyers (which only carry 1 Phalanx CIWS gun, and ought to carry 2 to give them protection fore and aft) and the Nimitz, Enterprise and Gerald R. Ford class carriers, which all could benefit from more CIWS guns and missiles located in more locations on the ships, to give the carriers 360 degree defensive coverage and redundancy in defenses so that if one CIWS system fails, another can take its place. Also, the U.S. Navy needs to avoid the fate of the INS Hanit (an Israeli corvette hit by a missile because she forgot to activate her countermeasures) and keep ECM and CIWS ready to use at all times, in addition to keeping sensors running at all times to ensure long-range detection of enemy combatants. Finally, to prevent "swarm" attacks, in which vast numbers of small boats overwhelm larger ships by forcing the latter to expend all of their defensive weapons on endless waves of boats, the Navy needs to upgrade all ships to carry AESA radar, which can track more targets than current radars can. Further, U.S. warships ought to carry more ammunition for all of their weapons in order to not get overwhelmed by large numbers of enemies.

Thus, the supposedly lethal threat of Iranian speedboats may not be so scary after all. History has shown that small craft never live up to expectations. The Navy currently has the means to defend itself against any number of small craft attacks, and it can be expected to do so in the event of a conflict. It is probably now time for the naval brass to start looking for the next unbeatable threat to naval supremacy.

observation on the economy

Below is a list of every major American panic (recession or economic collapse in modern parlance) in the 18th and 19th centuries. See if you notice a pattern.

Panic of 1796: Lack of regulation led to the bursting of the land bubble in 1796, causing a financial crash. The crash soon escalated into a depression that caused economic hardship in both America and Britain.
Panic of 1819: Unregulated overspeculation in Western lands led to economic collapse and depression.
Panic of 1837: Caused by overspeculation in Western lands by unregulated "wildcat" banks. Western expansion briefly stopped because millions lost their wealth, and millions in government funds were lost when several hundred banks collapsed.
Panic of 1857: Too much grain production, overspeculation in land and railroads, and inflation caused by inpouring California gold caused a major economic crisis that is widely considered to be the first international economic collapse, since it was felt throughout all of Europe and in America.
Panic of 1873: More railroads were built than were necessary, causing many railroad financiers to go bankrupt on their railroad investments. Further, lack of regulation in the gold markets allowed Jay Gould and James Fisk to acquire almost all of the market by bribing government officials. When Gould and Fisk began to pull their money out of gold because of a miscommunication, the market collapsed. This panic was so severe that it was known as the Great Depression until the actual Great Depression of the 1930s.
Panic of 1893: Unregulated overspeculation and overbuilding in railroads caused the railroad bubble to burst. This is identical to the cause of the Panic of 1873. This was the most severe depression of the 19th century, with millions losing their jobs.

If you don't see it, here's the pattern that I get from this data: every American economic crisis and depression of the 18th and 19th was caused by unregulated speculation, followed by that speculative bubble bursting catastrophically. Usually, the culprit was overspeculation in land (i.e. real estate), or in the last 20 years of the 1800s, railroads. So opponents of regulation may want to read up on their history, because under-regulation has a tendency to cause massive economic collapses every two decades or so.