President Putin is mobilizing his forces in eastern Ukraine. Last week, Russian and Ukrainian authorities signed an agreement to ease tensions, but this week Putin is on the attack.
Now is the time for the United States to support Ukraine by moving forward with infrastructure and permits to export natural gas. Increasing our exports of liquid natural gas would help our allies and hit Russia where it hurts, in the pocketbook.
Russia provides over half of Ukraine’s and almost a third of Europe’s natural gas. Russia gets about half of its revenue from oil and gas. Natural gas is cheaper in the United States than in Russia, so increasing America’s exports of LNG would lower Russia’s profits—and increase American economic activity and jobs.
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 (5.7 trillion cubic feet). The Energy Department estimates that 16 percent (3.0 trillion cubic feet) of the natural gas consumed in Europe passed through Ukraine’s pipeline network.
In the past, as much as 80 percent of Russian natural gas exports went through Ukraine, but that has declined to 50 percent to 60 percent due to the Nord Stream pipeline, built in 2011, which provided a direct link between Russia and Germany under the Baltic Sea.
Nearly 12 billion cubic feet of natural gas flows through Ukraine per day in the winter and about 6 billion cubic feet per day in the summer.
Our government has a number of options. Congress could help Ukraine and other countries by amending the Natural Gas Act to ensure that the Energy Department approves LNG export applications promptly. It could allow LNG to be exported to all World Trade Organization members, regardless of whether they have free trade agreements with the United States.
Many reasons are given to prevent more exports of U.S. natural gas. They are practically all wrong, made by people who underestimate the amount of natural gas America has and the potential effect exports could have on the world market.
Let us address three of the wrong reasons for not exporting natural gas.
Exporting gas will raise U.S. prices. Some, such as Massachusetts Senator Ed Markey, suggest that exporting natural gas will increase prices to American consumers by $2.50 per thousand cubic feet. However, America has massive natural gas expansion capacity. Wrong.
The price might rise, but not by much—between three and six percent in 2025, according to estimates by Stanford University’s Energy Modeling Forum. Over the past five years, as exports have increased, prices have declined.
Drilling efficiency has substantially increased over the past seven years. Productivity of oil and natural gas wells is increasing across many places in the United States both because geologists have pinpointed the most productive wells and horizontal drilling and hydraulic fracturing are becoming more precise and efficient.
According to the Energy Information Administration’s Annual Energy Outlook forecasts, natural gas production will increase 56 percent through 2040.
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.
Shortage of Infrastructure. Some say that we cannot export natural gas 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.
True. But this does not mean that we cannot plan. Announcements about our intentions to build infrastructure to export send signals to futures markets, which affect prices today. President Putin is watching our intentions carefully.
The role of expectations can be observed by the speed with which events influence current prices. When war breaks out in the Middle East, or a hurricane is forecast to blow through the Gulf states, or when a refinery is shut down due to an accident, prices climb on the news—even though supply has not changed. Prices climb not due to the disruption in supply, which has not yet occurred, but due to expected disruption in supply, and to a change in futures prices.
Increase in Greenhouse Gas Emissions. Environmentalists admit that exports mean more production—which will keep price levels stable and raise the numbers of Americans employed—but they oppose increased usage of natural gas because they are concerned that greenhouse gas emissions will rise.
Increased production of American natural gas could displace not only Russian gas, but also some coal use, reducing greenhouse gases will be reduced. Our gas exports could potentially lower global emissions.
Over the past decade, imports of natural gas have declined, exports have increased, and prices have declined. That is because American withdrawals of natural gas have grown from 24 trillion cubic feet to 30 trillion cubic feet. In 2013, about 15 percent of natural gas withdrawals were not marketed. This amounted to 4.5 trillion cubic feet per day, most of which was wasted. Exporting 15 percent of natural gas would not raise the price substantially.
Russia’s incursion into Ukraine is a national embarrassment with global implications. Once Putin takes over parts of the Ukraine, why should he not swallow the Baltic countries as well? America has no appetite for military force, but we have economic power and we should use it.
Clik here to view.
