Wednesday, August 20, 2014


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Could U.S. Gas Boom Loosen Europe's Energy Dependence On Russia?

The Adriatic LNG Terminal, near Rovigo, Italy.
The Adriatic LNG Terminal, near Rovigo, Italy.

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With shale gas production in the United States booming, Russia’s intervention in Crimea has given a boost to those calling for the United States to expedite natural gas exports to Europe to help it cut its reliance on Russian energy. But how realistic is this idea? 

Why all the talk about the United States exporting natural gas to Europe?

Russia is the world’s largest exporter of natural gas and Moscow has not been shy about using this as a political weapon. With Russia supplying Europe with approximately 40 percent of its energy, and with the main natural gas pipelines running through Ukraine, the potential for new disruptions -- and political blackmail -- are very real.

This has led to calls for Europe to seek alternative sources of energy. And one key source could be across the Atlantic Ocean, in the United States. 

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Thanks to breakthroughs in hydraulic fracturing technology, known as fracking, and the subsequent "shale gas revolution," the United States has in recent years become the world's largest natural gas producer.

Since there are no natural gas pipelines running across the Atlantic, in order to export to Europe, the United States would need to convert its natural gas to Liquefied Natural Gas (LNG) and ship it in tankers.

Who is calling for U.S. gas exports?

Top U.S. lawmakers and European politicians have pounced on the crisis in Ukraine to urge the administration of President Barack Obama to speed up the process of approving exports of LNG.

Writing in "The Wall Street Journal" on March 6, John Boehner, speaker of the U.S. House of Representatives, called for Washington to "liberate" its "natural energy" as a weapon against Russian President Vladimir Putin.

The ambassadors of countries in the Visegrad Group -- Poland, the Czech Republic, Slovakia, and Hungary -- also wrote a letter urging the U.S. Congress to remove bureaucratic hurdles to exporting gas. Such a move, the ambassadors argued, would reduce their dependence on supplies from Russia.

Likewise, Polish Prime Minister Doland Tusk darkly warned on March 10 that “Germany's dependence on Russian gas may effectively decrease Europe's sovereignty.”

Could the United States export gas to Europe in the volumes required?

Jennifer DeLay, the editor of the weekly publication "FSU Oil and Gas Monitor," says that theoretically, yes, it is possible.

"The gas supply in the U.S. is sufficient to support exports and its production is growing. However, it is not something that could be done immediately. If the exports open up, then I expect that the U.S. would be able to provide significant volumes of gas to Europe. It probably would be enough to take some of the pressure off," DeLay says.

Jonathan Stern of the Oxford Institute for Energy Studies says Europe has the capacity to receive a large number of LNG tankers -- more so in Great Britain and southern Europe than in central Europe.

Poland is building an import terminal on the Baltic coast for LNG, expected to be completed at the end of this year.

How soon could the United States begin exporting natural gas to Europe?

The United States is not currently a major exporter of natural gas. What it does export, goes mostly to Canada and Mexico by pipeline. 

The U.S. Energy Department has approved six LNG export terminals to export liquefied natural gas by tanker, and more projects are in the works.

Stern says the United States won’t have its first LNG export terminal in operation until the end of 2015 at the very earliest, and the big volumes won’t be available until at least 2019.

"I'm afraid this is not very realistic, and it's not going to happen any time soon. This is typical political discussion from people who don't really understand the situation," Stern says. "We should not really expect that U.S. gas exports will in some way reduce our dependence on Russian gas even in five or six years time. Certainly not before that."

In a recent interview with “The New York Times,” Carlos Pascual, who heads the State Department’s Bureau of Energy Resources, said that although the prospective American exports would not immediately solve the problems in Europe, “it sends a clear signal that the global gas market is changing, that there is the prospect of much greater supply coming from other parts of the world.”

Would it be profitable for U.S. companies to sell gas to Europe?

According to Stern, natural gas suppliers will sell LNG to buyers willing to pay the highest price -- and those buyers may not necessarily be in Europe.

Currently, he says, Europe is not buying much LNG because Asian buyers pay a higher price.

Stern says that if U.S. gas prices go up dramatically -- as they did for a short period in February because of very cold weather -- then U.S. gas could not compete in Europe at current prices.

Stern adds that Moscow could easily cut its prices, so that their gas would be more attractive than importing LNG.

"The prices change all the time. This is becoming a very dynamic global market, and it's very difficult to say when U.S. gas will be available, what the price will be in the U.S. and in Europe in order to allow that to compete," Stern says. 

"It's also difficult to say what's going to be happening in Asia, and whether Asian countries like China or India will want more LNG and be prepared to pay higher prices than Europe."

DeLay also notes that opposition in the United States to the controversial fracking process and to the construction of LNG terminals for exports is likely to play a factor in public discussions of the issue.

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