On March 7th Gazprom, the Russian natural gas monopoly, which supplies Ukraine with most of its gas, warned that it might shut off supplies to Ukraine unless it pays its $1.89 billion dollars of debt to the company. Ukraine is unable to pay Gazprom this exuberant amount of money it owes. This debt alone would comprise an eighth of the combined financial assistance recently proposed by the European Union and the United States. This is a significant amount of money that the Ukrainian government desperately needs in order to strengthen its own governing capacity at home.
Would Russia really cut gas exports to Ukraine? Yes – this wouldn’t be the first time; in fact, in the last decade Russia has left Ukraine, and Europe, cold and dry during previous disagreement during the winters of 2006 and 2009. Russia is the largest supplier of gas to Europe, which provides Russian leaders significant influence over European governments, particularly Eastern European states. According to Jason Bardoff, more than half of the natural gas that Russia supplies to Europe flows through Ukraine, and notes that Europe is growing more dependent on Russia’s natural gas.
Can the U.S. rescue Europe? In the last five years headlines like “The American Shale Gas Revolution,” and “The Us Gears Up To Be a Prime Gas Exporter,” have made front pages of major international newspapers. It is true that the United States is rapidly becoming less reliant on foreign oil and gas for domestic consumption, and that America has never been in a better position to become an exporter in terms of natural gas availability. However, the American Natural Gas Act of 1938 and America’s polarized political environment constrains the United States from taking action to counterbalance Russia’s threat of cutting off Europe of its natural gas imports.
America’s Natural Gas Act of 1938 (NGA) prevents President Obama from exporting Liquid Natural Gas (LNG) to non Free-Trade Agreement countries without the Department of Energy’s (DOE) authorization, which includes gas for European Union member states and Ukraine. According to the NGA, the DOE cannot approve exports to countries with no Free Trade Agreements (FTA) if it believes the exports “will not be consistent with the public interest.” To answer this question, the DOE must consider a wide array of potential consequences that an approval would have on all Americans. Two main concerns of increasing American LNG exports are: 1. Increase in fuel-price for Americans; 2. Environment degradation from the process of extracting natural gas domestically called “hydraulic fracturing.”
Two recommendations for the U.S to expedite the LNG approval process:
1. The European Union and the United States can attempt to move the Transatlantic Trade and Investment Partnership (TTIP) deadline to an earlier date in 2014. This will allow LNG export to Europe, although not to Ukraine-by then Western Europe could arrange a deal with Ukraine without DOE authorization; the drawback here is this depends significantly on EU politics. What will help make an earlier deadline possible is for the U.S. Congress to authorize President Obama the “fast track negotiating authority.” This authorization will allow Obama to negotiate international pacts with other countries more efficiently by putting time limits on congressional consideration of those deals, and prevent the deal from being amended by Congress. The Obama administration’s most recent attempt to convince Congress to authorize the president trade promotion authority was unsuccessful.
2. Congress can amend the Natural Gas Act of 1938. Of the gas companies currently going through the DOE approval process for LNG export, it is estimated that the earliest time any company will be able to export LNG is late 2015. Given the rapidly evolving crisis in Ukraine, and looming natural gas shortage in Europe, this timeframe is too slow for the United States to take appropriate action. Although the American political environment will again complicate this recommendation, given the rapidly escalating Ukrainian crisis, amending the NGA may be the best option for the United States’ long-term geopolitical interest.
And, of course, there’s always the idea that maybe domestic concerns outweigh potential long-term geopolitical benefits, and that it is in the United States’ interest not to export LNG to Europe.