The U.S. Does Not Have As Much Leverage Over Russia’s Energy As You Think
I have seen a number of commentators over the last few days say that the American shale gas revolution means that the U.S. could simply announce new LNG exports and that would undercut Russian gas. House Energy and Commerce Committee Chairman Upton, for instance, said in a statement: “Expanding U.S. LNG exports is an opportunity to combat Russian influence and power, and we have an energy diplomacy responsibility to act quickly.”
Statements like this overstate the influence that U.S. energy can have on this crisis Ukraine. While it is true that a viable, functioning LNG export capacity would provide geopolitical benefits, we do not have it today and we should not think that the U.S. energy boom will help in this crisis.
The U.S. energy boom has already helped reduce Russia’s influence and increased European energy security, without a singe molecule of US Natural Gas landing on the continent. This is because, even if the United States does not directly supply Europe with oil or natural gas, because the U.S. no longer is demanding imports of liquefied natural gas (LNG) has freed up major suppliers like Qatar or Norway to send supplies to Europe.
Furthermore, by 2018-2020, an expansion of U.S. exports of LNG could supply Western Europe by further undercutting the Russian position as monopoly supplier. The boldest example of these options is that the European Commission felt strong enough to bring and win an anti-trust suit against Gazprom.
These are long-term trends, however. In the short term, the U.S. alone does not actually have much leverage over Russia in energy. Gone are the days when 20% of the Marshall Plan could be given as in-kind donations of American oil, as the U.S. did in 1948.
Today, the U.S. could not even announce that we intended to buy LNG from a current exporter like Qatar to ship to Ukraine to supplant Russian gas, because Ukraine has no LNG import facilities. Ukraine doesn’t even have import pipelines from Western Europe – the only place it can get gas from is Russia – so they are at Gazprom’s mercy when they announce price increases.
Surprisingly, the ones that have the leverage in this crisis is not energy-rich U.S. – it is energy poor Europe. The conventional wisdom is that Europe is fatally dependent on Russia for gas imports, but that’s wrong. After a warm winter that had lower than predicted gas demand, European gas inventories are high (unlike in the U.S., where our cold winter has drawn gas inventories down to near zero and driven prices up). So, with European gas demand low and inventories high, Russia needs Europe to buy its gas more than Europe needs the gas.
As I wrote earlier this week, that means that the Europeans can change Russian behavior by implementing an embargo on the importation of Russian gas. American policymakers should move away from unilateral sanctions that would have little effect and begin to pressure allies in Europe to stand up to Russia. Members of Congress and pundits should not focus on what the U.S. can do alone (or use this crisis as another excuse to score political points), but should focus on how to put some steel in the spines of the French, German, Italian, and UK governments. If they ceased buying Russian gas, things would change quickly. Americans should offer all possible support, but we should not pretend that our energy policy will change anything in Ukraine in the short term.