Clash over Crimea stokes U.S. energy fight

The Obama administration is under increasing pressure from Western European allies, U.S. lawmakers and energy industry heavyweights, who all point to the crisis in Ukraine as evidence Washington should go further than it has to pump up American oil and gas exports to Europe. 

While the crisis has shone a spotlight on Europe’s deep dependence on Moscow to meet its energy needs, supporters of the Canada-to-Texas Keystone XL pipeline are even seizing on the situation to press the administration to approve the project that they say bolsters U.S. national security.

“We need to send two signals: approve the Keystone pipeline and indicate that we are going to expedite [liquefied natural gas] export permits,” said Jack Gerard, president and CEO of the American Petroleum Institute.

So far, the White House has shown no inclination to link approval of Keystone — which would carry crude from Canada’s oil sands and from North Dakota’s Bakken Shale Formation to refineries in the U.S. Gulf Coast — to its discussions on helping Europe wean itself off Russian energy. 

The Obama administration has, however, shown new willingness to ease restrictions on the exports of natural gas to Europe.

Mr. Obama and European Union leaders alluded to this in a joint statement last week, saying the situation in Ukraine “proves the need to reinforce energy security in Europe” and the U.S. and EU are “considering new collaborative efforts to achieve this goal.”

The statement welcomed the prospect of the exports of liquefied natural gas from the U.S. to Europe “in the future.”

Congress in the 1970s made it illegal to export crude oil without a license. Authorizations are also required for the export of natural gas. The laws passed by Congress and shaped by the energy crisis at the time aimed to conserve domestic oil reserves and discourage foreign imports.

The catch is that Mr. Obama can allow export licenses if he determines they are in the national interest.

With the U.S. surpassing Russia to become the world’s largest producer of natural gas last year, Martin Durbin, president and CEO of America’s Natural Gas Alliance, said the developments in Ukraine have elevated the debate on exporting natural gas.

“We’re hearing positive statements,” said Mr. Durbin, who added that exporting gas gives the U.S. the opportunity to “become a much stronger player in the global energy markets, helping our friends around the world, and diminishing the ability of countries like Russia to be able to use energy as a weapon.”

In the past three years, the Energy Department has approved seven licenses to export liquefied natural gas to countries in Europe, Asia, and South America; 24 applications are still pending.

The Obama administration must expedite the approval process, said Mr. Durbin.

Long-term impact

Even after approval is given, it could take years before natural gas is exported.

Cheniere Energy’s liquefied natural gas export facility at Sabine Pass, Louisiana, which is the furthest along, is estimated to only begin exporting at the earliest by late 2015.

Boosting the U.S. natural gas exports is being touted as a way to weaken Russia’s hold over Europe. Mr. Gerard described Russia’s energy industry, which generates more than 50 percent of the Russian federal government’s budget, as its Achilles’ heel. Russian revenues are dominated by the sale of oil, not gas.

“If we are serious about having an impact on Russia, you have got to go right to the No. 1 indicator and that’s energy,” he said. 

“So rather than taking punitive approaches that potentially adversely affect us and the rest of the globe, take a positive approach and move to bring more [energy] supply to the marketplace,” Mr. Gerard added, referring to fresh sanctions being considered by Western governments, including the U.S., against Russia.

Russia’s annexation of the Crimean Peninsula earlier in March was made easier by its energy grip over Ukraine, Rep. Ed Royce, California Republican and chairman of the House Foreign Affairs Committee, said at a hearing last week.

But not everyone agrees. Some analysts note the high cost of liquefying and transporting natural gas and say U.S. exports to Europe are unlikely to eliminate Russia’s edge. 

Further, exporting U.S. natural gas will lower the global cost, but could raise gas and electricity bills in the U.S., said Michael Levi, senior fellow for energy and the environment at the Council on Foreign Relations.

Mr. Levi told the House Foreign Affairs Committee last week that, even with reduced rates, Russia could still maintain its market share in Europe by underpricing U.S. exports — and instead of Europe, U.S. energy firms would look to Asia where higher prices mean a greater chance to reap a profit.

Some in Eastern Europe appear uninterested in such factors. Jaroslav Neverovic, the energy minister of one Baltic state, Lithuania, made a passionate appeal to members of the Senate Committee on Energy and Natural Resources last week to “do everything within your power” to help his country break free from its energy dependence on Russia.

And in Congress, a growing number of lawmakers are adding their voices to calls for easing energy exports. Mr. Royce and Democratic Rep. Eliot Engel of New York, the ranking member on the House Foreign Affairs Committee, authored a resolution passed by the House on March 11 that condemned Russia’s actions in Ukraine and called on the U.S. to promote natural gas exports to reduce Mr. Putin’s leverage in his neighborhood.

“Since the president has chosen not to use his authority to permit natural gas exports, Congress can do the job for him by passing legislation to increase the number of countries that would receive accelerated approval of natural gas exports,” Mr. Royce said.