Experts See U.S. Energy Exports as Foil to Russian Aggression

Approving additional natural gas exports could blunt Kremlin’s influence

Vladimir Putin / AP
March 3, 2014

Experts suggested increasing U.S. oil and gas exports could be an effective way to blunt Russian influence following its invasion of the Crimea.

The Kremlin has used its extensive oil and gas supplies to exert influence over a number of Eastern European countries, including Ukraine. While that country has reduced imports from Russia, it remains highly dependent on fossil fuels from the nation.

Gazprom, the Russian state-owned oil company, has signaled that it may hike energy prices for Ukrainian energy company Naftogaz in August.

Observers see that threat as a continuation of Russia’s long use of energy policy as a geopolitical cudgel. The strategy "is a traditional Russian move to pressure Ukraine," said Mikhail Korchemkin, director of East European Gas Analysis.

The ability of the United States to at least partially make up for a reduction in Russian exports, which could affect not just Ukraine but much of the continent, highlight U.S. interests in approving additional energy export projects, experts said.

Doing so could help blunt Russia’s control over the continent’s energy market, according to Council on Foreign Relations Fellows Robert Blackwill and Meghan O’Sullivan.

"The influx of North American gas to the market will not entirely free the rest of Europe from Russia’s influence," they recently wrote. "But additional suppliers will give European customers leverage they can use to negotiate better terms with Russian producers, as they managed to do in 2010 and 2011."

Despite these potential benefits, the Obama administration has been slow to approve export licenses for liquefied natural gas terminals in the United States.

The Energy Department gave a preliminary nod to one such terminal in Louisiana last month. Sen. David Vitter (R., La.), a strong proponent of additional gas exports, praised the move, but knocked "the cumbersome federal regulatory process" preventing more projects from being approved.

The conflict in Ukraine demonstrates the importance of additional U.S. natural gas export capacity, experts say.

"Given the situation in Ukraine, this is the best time for proponents of natural gas exports to press their case," wrote financial analyst Varun Chandan Arora on Saturday.

The ongoing spike in U.S. oil and gas production, a result primarily of advances in extraction techniques, is seen as an economic windfall for the country. But it is also shifting the geopolitical landscape, experts note.

Even absent additional U.S. exports of domestically produced oil and gas, the country’s increasing ability to satisfy its own energy needs means more oil and gas available to nations in Europe and elsewhere, potentially loosening Russia’s grip on the region’s supply.

Tensions between Russia and Ukraine have the potential to drive up global energy prices. Crude oil prices jumped by $2 per barrel on Monday on fears of a tightening global market.

The Untied States’ ability to respond to a potential oil or gas shortage is constrained by restrictions on exports of domestically produced fossil fuels.

"The turmoil in Ukraine … gives a strong reason to the U.S. to remove restrictions on natural gas exports to countries with which it does not have free trade agreements," Arora wrote.

Those restrictions allow Russia to maintain the threat of supply restrictions, according to Gregory Mankoff, deputy director of the Russia and Eurasia Program at the Center for Strategic and International Studies.

"I think it’s certainly a concern. It’s happened twice before," Mankoff told Politico, referring to instances in 2006 and 2009 in which Russia shut off supplies to Ukraine.

Anders Aslund, a fellow at the Peterson Institute of International Economics, said "the tables have totally turned" since then, noting that Ukraine has reduced its use of Russian gas in the interim.

However, the immediate impacts for Ukraine would still be devastating. "Getting the amount that’s necessary at a reasonable price in a necessary time frame is going to be hard," Mankoff said.

A cessation of exports could also have reverberations around Europe, since nearly two thirds of Russian gas exported to other European nations passes through Ukraine.

Mankoff noted that U.S. restrictions on natural gas exports would hinder Washington’s ability to respond in the near-term to a sudden shortage of natural gas in Ukraine.

That could leave NATO countries in Europe less willing to antagonize the Kremlin for fear of energy price spikes. The EU said on Monday that it is considering "targeted measures" against Russia in light of its increasing aggression towards Ukraine, though member states had not yet agreed on what those measures might be.

Germany, France, Great Britain, and the Netherlands have previously signaled support for international mediation with Russia instead of the imposition of economic sanctions.

Secretary of State John Kerry threatened a number of potential economic actions against Russia on Sunday, possibly including trade restrictions and asset freezes. Additional U.S. energy exports could offer another means of economic reprisal.

Oil and gas revenue comprises more than half of Russia’s federal budget, and more than 70 percent of the nation’s exports, according to the Energy Information Administration. Additional U.S. exports could eat away at that market share.