Save the Ukraine By Exporting Natural Gas
A prescient House Energy and Commerce Committee report released last month, just in time for Russia's invasion of Ukraine, suggested that "by becoming a natural gas exporter, the U.S. can supplant the influence of other exporters like Russia and Iran while strengthening ties with our allies and trading partners around the world."
President Obama does not want to use military force to counteract Russia. His 2015 Budget, due out this week, will shrink the military still further. But he has another weapon at his disposal, liquid natural gas exports.
Congress and the president should without delay pass laws to make it easier to export liquid natural gas. Such laws would help our allies and hit Russia where it hurts, in the pocketbook.
More than half of Ukraine's natural gas, and 30 percent of Europe's natural gas, is provided by Russia. Russia gets about half of its revenue from oil and gas.
LNG is cheaper in the United States than in Russia, so increasing America's exports of LNG would lower Russia's profits.
Last fall, in a forum hosted on Capitol Hill, Zygimantas Pavilionis, Lithuanian Ambassador to the United States and Mexico, said, "An ability to import natural gas from the U.S., even very small amounts by U.S. standards, would make a huge impact on the Lithuanian gas market and allow the nation to develop a reliable alternative to Russian gas."
And according to Jaroslav Zajicek, the Czech Republic's Deputy Chief of Mission, "We have already seen examples where the Russian negotiating position during contract-renewal talks was weakened thanks to decreasing prices on the markets in Western Europe."
This week natural gas for April delivery was trading at about $4.50 per million British thermal units, compared to about $11 per million BTUs in Europe.
America is overtaking Russia as the world's largest oil and gas producer, and could be exporting natural gas abroad. However, companies face barriers because many believe that the United States should keep all its natural gas, rather than exporting it. That is why it takes a long time to get approval to build terminals to export LNG, and to get permits to export LNG to countries without free trade agreements with the United States.
This is misguided. America has massive natural gas expansion capacity, and LNG exports are unlikely to harm U.S. manufacturing's comparative advantage in cheap energy. Even if we export LNG, it will still be less expensive in the United States, because of transportation costs.
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 projects since 2011.
It is not just in issuing LNG export permits that the federal government is slow. Uncle Sam cannot make any energy decisions rapidly.
According to data collected by the Institute for Energy Research, federal drilling permits have become more difficult to acquire. Between fiscal years 2006 to 2008 and 2009 to 2011, the number of permits approved fell from 20,479 to 12,821. Moreover, between 2005 and 2011, the time it took to acquire such a permit rose from 154 days to 307 days.
To get a better idea of how the federal government is slowing down the process, an August study by the U.S. Government Accountability Office found that applications to the Bureau of Land Management for drilling permits declined by 50% between 2007 and 2012. Plus, the Bureau said in an internal memorandum that it has not been able to process applications within a month, as is required to do by law.
Congress and President Obama could immediately assist Ukraine and other countries by amending the Natural Gas Act to ensure that the Energy Department approved LNG export applications within a short period of time.
Alternatively, our government could also 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.
Even better, Congress could go still further, and cease to require approval for LNG exports.
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 freedom and democracy in Ukraine.