U.S. Eyes Natural Gas Exports to Weaken Putin

Growing consensus is emerging that the United States should export natural gas to weaken President Vladimir Putin of Russia, from the editorial pages of the country’s major newspapers to the halls of Congress.

Democratic and Republican members of the House and Senate have introduced bills to speed the permit approval process in recent weeks. While Congress debates those bills in hearings this week, Ukraine is grappling with Russian demands that it pay back $16 billion owed, $11 billion of which comes from discounted gas savings it received in return for hosting a Russian naval base in Crimea, which Russia formally annexed from Ukraine last week. Without Russia’s energy subsidies, Ukraine could see gas prices skyrocket, despite a recent $1 billion loan guarantee from the U.S.

Supporters of expanding U.S. natural gas exports say it would blunt Russia’s political and economic leverage; more than half of Russia’s natural gas sold to Europe is transported through Ukraine, and more than 75 percent of Russian gas exports go to Western Europe. Ukraine itself is also highly reliant on Russia, which supplies 60 percent of Ukraine’s natural gas.

“If we expedite these approvals to these non-FTA [Free Trade Agreement] countries, whether it goes to Europe or it goes to Asia, I think it does impact Russia in a number of ways,” said David Goldwyn, a Senior Fellow at the Brookings Institution who will testify before the Senate Energy Committee on Tuesday about the possible impact of U.S. gas exports on Europe and Ukraine. “You will both hurt their [Russia’s] market share and their market cap, the more we create gas on gas competition.”

The bills before Congress could change the status quo, and politicians in tight reelection races are jockeying to get in on the fight against Putin. A day after Sen. Mark Udall (D-Colo.) introduced a bill that would expand natural gas firms’ access to World Trade Organizations like Ukraine, Rep. Cory Gardner (R-Colo.), who is challenging Udall for his seat this year, introduced a bill that would grant immediate approval of the 24 pending applications currently filed with the Department of Energy (since 2011, DOE has approved six applications for permits to export natural gas to non-free trade agreement nations). A House panel will hold a hearing on Gardner’s bill Tuesday.

While there are also environmental considerations, some energy experts oppose the proposed legislation as insufficient to cut through bureaucratic red tape that has left the country largely unable to send natural gas to non-free trade agreement countries, such as Ukraine, this year.

“I’m getting increasingly concerned about it, because it’s an empty threat,” said Edward Chow, a Senior Fellow at the Center for Strategic International Studies who will testify before the Senate Tuesday on the same panel as Goldwyn. “The Russians understand this empty threat. We have no LNG [Liquefied Natural Gas] export facilities, Ukraine has no LNG import facilities, other than that—it’s a great idea.”

Others, such as Michael Levi of the Council of Foreign Relations, point to other practical concerns, like the fact that the decision for where to export would be made by companies, not the United States, and that prices in Asia could tempt U.S. companies more so than Europe. Even in a crisis, countries would have to offer financial incentives to companies to build terminals to bring in new oil.

The U.S. could intervene in other ways, but they are “admittedly minimal” in the near term, according to Jason Bordoff, the Director of Center on Global Energy Policy at Columbia University and a former White House aide on energy and climate change. Bordoff said Ukraine has four or five months of energy in storage, and in the meantime, Poland and Hungary, whose ambassadors have lobbied Congress for LNG permit reforms, could begin the process of reversing the flow of pipelines into Ukraine. Ukraine could potentially import electricity from other European countries, and in the coming years could develop its significant shale gas resources. Of course, that last option wouldn’t solve Ukraine’s near term problems.

The U.S. could also provide cash assistance in exchange for Ukraine enacting a series of energy sector reforms. But helping Ukraine is “like pouring water into a leaky bucket” if the country can’t improve the government’s and energy industry’s reputation for corruption, Chow said. “Billions of dollars have been siphoned off by the gas sector by every administration in Ukraine for the last twenty years into personal pockets,” he said.

Without a bevy of American aid, Ukraine is at the mercy of the the European Union and the International Monetary Fund—or Russia. Moscow is seen as unlikely to cut off natural gas deliveries to Ukraine any time soon.

“It is important to remember that it is a mutually dependent relationship,” Bordoff said. “While that exists as threat, it is probably not in Russia’s interest to cut off supply.”

“I don’t think it’s likely next winter both because Russia needs those revenues, and it doesn’t have an alternate place to put that gas, and because its goal is to punish Ukraine and, at this point, not to punish Western Europe,” Goldwyn said. “If Russia were to seize the rest of [eastern] Ukraine and it were punished in meaningful ways by Europe and the U.S.—that might be a different story. But I don’t think that’s Russia’s intention right now, nor is it Europe’s.”