Close Nav

The U.S. Can Export Putin To His Knees

back to top

The U.S. Can Export Putin To His Knees

July 29, 2014

Writing in Sunday's Washington Post, Ukraine President Petro Poroshenko said, "We need U.S. natural gas to shore up our energy supplies so that we cannot be blackmailed by Moscow. We need a reliable partner and ally to help fuel our nation."

President Obama, are you listening?

Even though Russian missiles shot down Malaysian Airlines Flight MH17, no one in the international community wants to use military force or even meaningful sanctions to counteract Russia. But the United States has another weapon at our disposal, liquid natural gas exports. Increasing our exports of liquid natural gas would help Ukraine and our other allies who are dependent on Russia for energy. It would hit Russia where it hurts, in the wallet. It would help the American economy by providing buyers for our natural gas, some of which is just being flared, or wasted.

In the same edition of the Washington Post, columnist Anne Applebaum, author of the Pulitzer Prize winning book Gulag: A History, described how oil and gas drives Russia's influence. Russia's population is smaller than that of Nigeria or Pakistan, and its economy is the size of Italy's, but it controls European oil and gas companies.

Applebaum explains, "Russia has political influence in Europe because of the nature of Moscow's European business counterparts and partners: very large companies, usually connected to oil and gas, that make very large donations to political parties...All of Italy's wine and cheese exporters combined do not have the same voice in Italian politics as the chief executive of Eni, the Italian state gas company that is Russia's biggest wholesale gas client."

Of the 18.7 trillion cubic feet of natural gas consumed by Europe in 2013, according to the Energy Information Administration, Russia supplied 30 percent. About 50 percent to 60 percent of Russian natural gas exports go through Ukraine. The Nord Stream pipeline, built in 2011, provides a direct link between Russia and Germany under the Baltic Sea.

In the United States natural gas for September delivery traded at about $3.75 per million British thermal units, compared to nearly $10.00 per million BTUs in Europe.​ That is why America could immediately assist Mr. Poroshenko by selling some of the gas to Ukraine and Europe, undercutting Russia, which gets half its revenues from oil and gas.

If companies want to sell to a country which has no free trade agreement with the United States, they need approval from the Energy Department, which can take years. America has free trade agreements with only 20 countries, and the Energy Department has approved only six LNG export terminal projects since 2011.

The Energy Department is delaying approval of two dozen applications to export natural gas, some from 2011 and 2012. In total, potential exports of 29 billion cubic feet per day of natural gas are being held up by slow reviews from the Department of Energy. This amount highlights the strength of both domestic supply and international demand for natural gas. Undoubtedly, if the export process were not so onerous, there would be even more companies willing to invest in natural gas exports and apply for export permits.

The economic benefits of exporting LNG include more economic activity and more employment at home. But the geopolitical benefits could be even greater if we care, as we should, about the rule of law, and freedom and democracy in Ukraine

It is difficult for America to get Europe to agree to sanctions on Russia. But it is easy for us to export more natural gas to our European allies, lowering the price that Russia gets for its products.

Congress could amend the Natural Gas Act to ensure that the Energy Department approves liquid natural gas export applications within a short period of time. Or it could pass legislation allowing LNG to be exported to all World Trade Organization members, irrespective of whether they have free trade agreements with the United States. Or, it could go still further, and cease to require approval for LNG exports.

Instead, at the end of the week, Congress will go on a five-week vacation, leaving Ukraine to the mercies of Russia, which has entered its country and is arming its rebels.

According to the Energy Information Administration's Annual Energy Outlook forecasts, natural gas production will increase 56 percent through 2040. Natural gas exports are unlikely to harm U.S. manufacturing's comparative advantage in cheap energy. Even if we export natural gas, it will still be less expensive in the United States, because of transportation costs.

In North Dakota, for example, natural gas production has outpaced additions to gas pipeline capacity and processing facilities. Companies in North Dakota flare, namely burn, about 33 percent of total gas production. Some of this could be sold to Europe, including to Mr. Poroshenko. North Dakota has recently built new processing plants to increase its ability to bring more natural gas to market.

The productivity of oil and natural gas wells is increasing across many places in the United States because horizontal drilling and hydraulic fracturing are becoming more precise and efficient. Drilling activity in U.S. shale is generally producing more oil and natural gas than in the past.

The Marcellus Shale has the most increased production of natural gas per rig. A Marcellus Shale well completed in July can produce over 6 million cubic feet of natural gas per day more than a well completed in 2007, an increase of 1,200 percent.

Exports stimulate the economy and result in more jobs, rather than fewer, because foreign customers buy U.S. products. With increased natural gas exports more people would be employed in its production and transportation. Over 1.1 million people are already directly employed and about 9 million are indirectly employed in the oil and gas sector, the vast majority from small and mid-size companies.

Some say that there is no point in approving more natural gas exports because we do not have the infrastructure in place. To export gas, we need more pipelines to get gas to shipping terminals, and more shipping terminals. That could take as much as five years. However, this disregards the role of expectations. Announcements about our intentions to build infrastructure to export send signals to futures markets, which affect prices today.

We have massive natural gas expansion capacity, and we are overtaking Russia as the world's largest oil and gas producer. There is no good reason to delay exports of liquid natural gas. Russia's President Putin, who has not taken responsibility nor apologized for the tragedy that befell Malaysia Airlines Flight MH17, is watching carefully to see if we will answer Mr. Poroshenko's call.


Diana Furchtgott-Roth is a contributing editor at RealClearMarkets.  A former chief economist at the U.S. Department of Labor, she directs at the Manhattan Institute where she is a senior fellow. Follow her on Twitter: @FurchtgottRoth.   

Original Source

Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning eBrief.

e21 Partnership

Sign up for our MORNING E-BRIEF for top economics commentary:

By clicking subscribe, you agree to the terms of use as outlined in our Privacy Policy.










Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed