What is the best way for the U.S. to counter Russia’s natural gas threats?
After last week’s gas agreement between Russia, Ukraine and the European Union — which made clear Russia’s energy dominance over Europe — some have asked whether the U.S. could use its gas reserves as a “geopolitical weapon” to “stand up to Russian aggression,” as U.S. Speaker of the House John Boehner said in a statement earlier this year.
But such proposals are not grounded in reality.
Moscow, of course, already uses gas as a weapon. It employs cutoffs and pricing controls to coerce Europe and Ukraine whenever their political and economic decisions are not aligned with Moscow’s strategic interests.
Important ideological — and practical — reasons prevent the United States from responding in kind.
When people say that the United States should use its gas as a weapon, they mean that it should free up access to gas exports for U.S. allies, in order to undermine Russia’s dominant supplier position in Europe.
However, Washington’s professed commitment to free trade means that, unlike Moscow, it has to let the markets determine where the gas flows.
Free market ideology is also the reason why the White House does not have a state-owned gas company, like Moscow’s Gazprom, that it can use as a foreign policy tool.
The deals that have been made with U.S. liquefied natural gas (LNG) export facilities are company-to-company deals, and the government will not be able to influence the destination of the gas. The U.S. Department of Energy will not retaliate by revoking export licenses if Washington does not achieve its political goals during trade negotiations, for example.
Moscow does not face such obstacles with Gazprom, given that it owns it.
So is the U.S. commitment to free trade a geopolitical weakness? Far from it. If played right, it can be the U.S.’ greatest strength vis-à-vis Putin.
U.S. gas could be a force to be reckoned with in shaping the new gas order by generating more efficient and liberalized markets, cutting Russia’s dominant position in Europe.
The United States is set to become one of the world’s primary back-up suppliers in times of crisis, which will be particularly helpful for European buyers. Although Russian gas will remain Europe’s main supply, Europe will rely increasingly on liquefied natural gas — supplied by the United States and others — as an option, creating pricing competition in its market and improve the continent’s energy security.
U.S. LNG is also attractive because it is not bound to any specific market and can be easily swapped or sold on the spot market, creating more liquidity and efficiency in the global gas market.
The ongoing Russia-Ukraine crisis has reminded gas importers that sufficient spare supplies are of great necessity to the constant flow of natural gas supplies. From 2016 onwards, after the first U.S. export facility becomes operational, gas supply from the United States will serve as a backup for the European market against any supply-side disruptions from Russia, North Africa, or the Middle East.
The five already approved U.S. projects alone are estimated to catapult the United States from a virtual non-player to the world’s third largest LNG exporter, behind Australia and Qatar.
Europe would be one of the major beneficiaries of the global supply surge. At the moment, it does not match what Asia and South America are willing to pay for gas. However, once there is an abundance of fuel on the market, excess supplies will be sold to Europe at a lower price.
The United States is helping to usher in a new gas reality in which fuel can no longer be used as a coercive tool. This winter may be remembered as the last time when Russia could successfully create market anxiety and credibly threaten to conduct a gas war.
The United States will still use gas to serve its national interests and create geopolitical dividends–but more subtly. It will influence the shape of the new gas order in its image — freer, more transparent and competitive — which in turn will improve global energy security.
Far from weaponizing natural gas, the U.S. boom may lead in part to the disarmament of the energy wars.
PHOTO: A tap and meter shows zero level pressure on Druzhba oil pipeline at Hungarian oil and gas group MOL’s main Duna (Danube) refinery in Szazhalombatta January 9, 2007. REUTERS/Laszlo Balogh