Q&A: Why America Needs To Realize The Geopolitical Advantage Of Exporting Natural Gas And Starting To Do It Now

With prospects that Russia may cut natural gas supplies to Ukraine and western Europe or at least hike prices in retaliation for Kiev's February revolution, America's shale gas boom is taking on fresh geopolitical significance. Exports of natural gas to Europe could weaken or eliminate the Kremlin's leverage over Ukraine and the rest of Europe.

IBTimes asked Andrew Weissman, senior energy adviser at New York-based Haynes and Boone LLP, to weigh in on the debate on Wednesday.

What restrictions on U.S. exports of crude currently exist? What restrictions on LNG exist?

They’re different programs, but the restriction on crude exports has existed for quite some time. It’s really only recently that there’s been any effort at all to get approval for any exports and that’s been largely just to Canada. Politically, at least, prior to the crisis in Ukraine, it’s been generally thought that it would be very difficult for the Obama administration to act. One of the factors involved is the U.S. has been struggling with energy independence for so very long, that even though the conditions are now very different … there have been many members of Congress who have difficulty switching gears.

With natural gas exports there’s a specific section of the Natural Gas Act that prohibits exports without the approval of the Department of Energy. Over the last two to three years, there have been a very large number of applications filed with the Department of Energy for approval of natural gas exports… it covers at this point more than 30 bcf [billion cubic feet] per day of natural gas exports, and that would increase U.S. demand for natural gas by almost 50 percent, so there’s a huge number of implications.

There have been two constraints. The Department of Energy has been proceeding very slowly with the applications. Of the approvals they’ve granted only one is completely final. The others are preliminary, because in addition to the Department of Energy authorization to export the gas, to build an export terminal you need to build a liquefaction plant, which is essentially the world’s largest freezer. And that requires approvals from the Federal Energy Regulatory Commission, and the federal regulatory commission is more backlogged than the Department of Energy.

It’s taking so long because there’s been some significant acquisition, from a few specific industrial energy users [like Dow Chemical] who would rather that the U.S. restrict pretty severely the amount of natural gas that it exports, and there’s also been opposition from Sierra and some other environmental groups who are concerned about increased natural gas production.

Some of the concerns opposing groups have raised is that allowing exports would raise gas prices at home.

That’s the concern they’ve raised. Personally, I feel there’s very little basis for that. Pretty clearly we have gas supplies from shale that we can develop. The supplies are probably several times larger than the government estimates. The government estimates tend to be based on data that’s a few years old, and there have been such dramatic improvements in the past few years [in drilling]. The techniques for developing shale are getting radically better every year, so the costs are getting lower and lower, and there too the government is using data that doesn’t reflect the efficiencies that have been achieved in the last 12 months.

How has the crisis with Ukraine and Russia changed incentives for the U.S. regarding LNG exports?

I hope that as the dust settles that the whole perception both in the country and within the Obama administration of regulating LNG exports will more or less completely change, and the reason I say that is I think we’re seeing very dramatically and in very concrete terms that adequacy of natural gas supply to Ukraine in part but to Europe generally is an absolutely critical issue. Right now both Europe and Ukraine remain very heavily dependent on Russia for gas. And what you see when you turn on the TV or read the newspapers every day is that the biggest leverage Russia has, when the U.S. is not exporting LNG and the applications are moving along very slowly, it gives Russia leverage that’s very powerful. It probably gives them leverage that’s as powerful as sending troops into the Crimea.

There’s been very little recognition up until now why it’s so critical for the U.S. to export natural gas.

How soon could the U.S. begin exporting LNG to Europe, assuming all the relevant agencies came on board with it?

What’s really required is for the administration to look really long and hard at how we can really move this process along quickly. So far there’s been no sense of urgency. If there were a sense of urgency, the Department of Energy could issue additional authorizations certainly within a period of 90 days.

If the president and Congress gave FERC [the Federal Energy Regulatory Commission] the staffing and funding it needs to move the applications along more quickly, we could get a lot more approvals in the next six months and then projects could start coming on in three to four years.

In thinking about that, it might seem, well that’s a fairly long time, so would that really make a difference now? The answer is it would make a big difference right away. Literally, if the president were to make an announcement that this was what he was going to do tomorrow, it would make a big difference.

Right now, if you’re a European country, it’s very uncertain whether you’re going to be able to get gas supplies from the U.S. By contrast, if the president said tomorrow, we’re going to move this forward really aggressively, then these countries, like Germany, could with absolute certainly say to Russia, look I have a supply option. I still want to do business with you, but I have another option, and if you want to continue to do business with me, you have to be fair with me and demonstrate you’re going to be a supplier long term. Literally overnight our European allies would have a great deal of bargaining power to get better prices near term.

Should the U.S. want to cripple the Russian economy?

No, I wouldn’t say that. Putin has done some very aggressive things, and we need to make clear that we have some very powerful leverage of our own. We could in fact supply so much gas to Europe that it would really hurt Russia tremendously. And it’s potentially more powerful than any near-term economic sanctions.

What measure has Europe taken in the last decade or so to reduce dependence on Russian energy?

They are importing more gas from other sources from Central Asia, Norway, north Africa, and using pipelines that don’t go through Ukraine. Europe, including Ukraine, has found other sources of supplies and built a number of new pipelines but the problem is you have to have energy, so it’s better to be 30 percent dependent than 70 percent, but when you still dep on Russia for 30 percent, that’s still powerful leverage.

Can Norway and Algeria fill in European demand? Can anyone else? What will happen if the U.S. doesn’t increase gas exports to Europe?

I think there is some potential to bring in potentially more gas from Algeria, but of course that has its own risks with it. There have been terroristic attacks against some of the current LNG facilities in North Africa. In the past, there have been a lot of focus on central Asia potentially being a major source of supply but I think the question at this point is going to become, ‘Are those supplies adequately secure?’ I think something really, really major has happened. I’m not a foreign policy expert, but I think Ukraine is different than Georgia. Ukraine is a large country, which is really right between Russia and the rest of Europe, and Kiev and the other areas around it where most of the population is are very Europe-oriented, and armed conflict there is like armed conflict in the rest of Europe.

Some people say we haven’t had a crisis like this with Russia for 40 years… I think this fundamentally unsettles the balance of power, and it changes the game completely. As we recognize that I think we’ll become more aware that what we do with energy is maybe the single most important piece of the process of diplomacy.

Did anything in Tuesday’s energy security report surprise you? Stand out to you?

Even though it was just issued and it was well done, we’re moving into a whole new era. I don’t think anyone anticipated this change that’s dramatic and maybe semi-permanent.

Even if Russia doesn’t invade Ukraine, I think there’s a pretty significant risk it’s going to maintain control over Ukraine maybe for a long time. From an energy security standpoint, that creates a whole new uncertainty.

It’s almost like going back to square one, it’s such a basic change in the picture, I think it forces us to look at the energy supply fix completely different.

Who else could Russia or Gazprom turn to if it loses business from Ukraine and the rest of Europe?

For oil, it does sell into the global market, but Europe is its major customer. For gas, it’s been talking to China and South Korea, potentially it could sell more to Japan… but there are lots of obstacles. I’m not sure Japan or South Korea would buy from Russia if there’s a further escalation in tensions.

If the U.S. imposes economic sanctions on Russia, how would that affect the gas trade, especially American companies? The big fear is that Russia would retaliate by cutting off energy supplies. Essentially, both sides have some really major points of leverage. And both sides have some reasons not to want to promote the other. But given what’s happened, one would think unless Putin backs off there are going to be some pretty serious sanctions. Russia’s main source of income is selling energy, particularly selling to Europe. In terms of what happens near term, both sides have some significant leverage.

If we decide to ship LNG exports to Europe, that would have a major impact.