US, European energy leaders to discuss gas diversification measures

Top US government energy officials and their counterparts from other G7 nations will meet early next week to discuss reducing Europe’s heavy reliance on Russian natural gas, US President Barack Obama and two major European Union officials announced on Mar. 26.

The planned meeting is part of a broader US-European response to Russia’s annexation of the Crimean Peninsula during its confrontation with Ukraine that was discussed during a US-EU summit meeting in Brussels.

“I think energy is obviously a central focus of our efforts, and we have to consider it very strongly,” Obama said during a Mar. 26 press conference with European Council Pres. Herman Van Rompuy and European Commission Pres. Jose Manuel Barroso. “This entire event I think has pointed to the need for Europe to look at how it can further diversify its energy sources.”

He said the US “is blessed with some additional energy sources that have been developed in part because of new technologies,” and the country has already authorized the daily export of as much gas as Europe uses each day.

“But it's going into the open market; it’s not targeted directly,” Obama continued. “It’s going to private companies [that] get these licenses and they make decisions on the world market about where that energy is going to be sold. The question is whether—through our energy ministers and at the highest levels—we’re able to find ways in which we can accelerate this process of diversification. This is something we’re very much committed to.”

It was not immediately clear whether US Sec. of Energy Ernest G. Moniz; Carlos Pascual, Special Envoy and Coordinator for International Energy Affairs at the US Department of State; or both would represent the US during the planned discussion early next week.

Won’t happen overnight

Obama said, “We think it would be good for Europe. We think it would be good for the United States. It’s not something that can happen overnight, but what I think this entire crisis has pointed to is the need for us to get moving now with a sense of urgency. Our energy ministers are committed to doing that. That was their assignment coming out of the G7 meeting.”

Europe also will need to find other ways to address its energy needs, Obama continued, adding that he had raised that point with Van Rompuy and Barroso. European nations will need to examine, in light of what’s happened, their energy policies to find if there are additional ways to diversify and accelerate energy independence, the president suggested.

“The United States as a source of energy is one possibility, and we’ve been blessed by some incredible resources,” he said. “But we’re also making choices and taking on some of the difficulties and challenges of energy development, and Europe is going to have to go through some of those same conversations.”

The announcement came as a third congressional committee in 2 days examined US energy exports as a possible geopolitical tool. The House Foreign Affairs Committee’s hearing on Mar. 26 followed similar hearings a day earlier by the Senate Energy and Natural Resources Committee (OGJ Online, Mar. 25, 2014) and the House Energy and Commerce Committee’s Energy and Power Subcommittee.

“America’s newly developing energy supplies could make a difference, sapping [Russian President Vladimir V. Putin’s] strength, while bolstering Ukraine and many other European countries,” House Foreign Affairs Committee Chairman Edward R. Royce (R-Calif.) said in his opening statement on Mar. 26. “Over the past 3 years, just seven of the applications to export natural gas have been approved by the [US Department of Energy], while 23 are still pending. This is government at a glacial pace.

Russia top exporter

“But while the United States recently became the world’s largest producer of natural gas, Russia is still the biggest exporter,” he continued. “That is because while Putin is freely selling oil and gas around the world, we impose major impediments to exporting our energy.”

US Rep. Eliot L. Engel (D-NY), the committee’s ranking minority member, said in his opening statement that it’s not clear what impact US exports would have on Europe’s energy relationship with Russia. “US gas production has already ended most gas imports into our country, expanding the supply available for other countries,” he indicated. “Still, Russia will continue to be a major European energy supplier due to its large reserves and proximity to its customers. By contrast, US gas must be chilled into a liquid and shipped across the Atlantic—which can be very costly.”

Witnesses at the hearing were divided on how effective accelerating domestic LNG exports would be in reducing Europe’s dependence on Russian gas—and how soon it could realistically happen.

“Europeans’ ability to quickly shift from Russian to US gas in a future crisis would be severely limited by infrastructure constraints even if the United States expanded its LNG export infrastructure,” said Michael A. Levi, the David M. Rubenstein Senior Fellow for Energy and the Environment at the Council on Foreign Relations.

“Unless European companies build a large number of LNG terminals and pipelines and then idle them—something that profit-seeking companies rarely do on purpose—there will be limited capacity to absorb a sudden influx of US LNG in a crisis,” he said in his written testimony.

The US also is unlikely to seriously erode Russia’s European market share because Russia’s gas is substantially cheaper than delivered US LNG, and Russia can underprice US supplies, according to Levi. “This does, however, point to the one major way in which US LNG can hurt Russia: by forcing Russian sellers to cut their prices, it would put pressure on Russian revenues, undermining the Russian state,” he said.

Export crude as well

“Making America a world leader in LNG exports is a worthy goal, but the truth of the matter is these new export terminals will not be up and running for some time,” noted Harold Hamm, chief executive of Continental Resources Inc. in Oklahoma City and chairman of the Domestic Energy Producers Alliance. “If we want to have an overnight impact on today’s global events, we can immediately begin exporting crude oil, which does not have the same infrastructure constraints.

“With the 1970s-era rules still in place, however, producers must prove hardship in order to receive a license from the [US Department of Commerce] to export crude beyond North America,” he said in his written statement. “Why should any industry be singled out and required to prove hardship in order to participate in free markets? Domestic refiners certainly don’t have to.”

Russia’s national budget relies heavily on oil revenue, “and its economy is dangerously vulnerable to decreases in oil prices,” Retired US Navy Adm. Dennis G. Blair, an Energy Security Council member at Securing America’s Future Energy, told the committee. “A sharp change in oil prices in either direction could significantly affect Russia’s foreign policy decisions,” he said.

“Going forward, expanding or even maintaining oil production is expected to be difficult for Russia given depleted oil fields and the high cost of recovering untapped reserves,” Blair’s written testimony continued. “Exacerbating the need for increased production is the fact that, without it, rising domestic oil demand will lead to lower export levels and reduced revenue.”

Elizabeth Rosenberg, a senior fellow and director of the Energy, Environment, and Security Program at the Center for a New American Security, said the US should develop “new tools of energy statecraft” that combine energy policy, trade, and technical assistance measures which can punish adversaries and support allies.

They could include LNG exports, which would generate political goodwill abroad and increase domestic revenue, she said in her written testimony. “Energy statecraft tools also include diplomacy and foreign assistance to promote energy development and market reform abroad,” Rosenberg said. “They are deployed, for example, by US government programs to help foreign governments develop shale resources.”

Senators respond

Elsewhere in Congress, two Senate Energy and Natural Resources Committee members responded to Obama, Van Rompuy, and Barroso’s statements in Brussels on Mar. 26.

“This is clearly only one step of many needed to send a message to President Putin,” said Ronald L. Wyden (D-Ore.). “But as the former chairman of the committee, I know that a stable energy supply is the lifeblood of any economy and a very important component to a secure nation. This approach will give our allies the tools they need to become more secure and less dependent on the whims of Mr. Putin.”

He said he introduced an amendment on Mar. 26 to a US Department of State program which aids gas development abroad. The amendment directs $10 million within the Economic Support Fund to support the Unconventional Gas Technical Engagement Program, which helps countries develop the regulations and technical expertise they need to access their own gas.

It also encourages DOS to direct this assistance to Poland and other Eastern European countries which have asked for American help to harness their own energy supplies, Wyden said.

“After years of delay, I’m glad that the Administration is now expressing more support for exporting US LNG to Europe,” said John A. Barrasso (R-Wyo.), who has frequently criticized the president and his administration’s energy policy moves. He urged the president to direct DOE to immediately approve more of the 24 LNG export applications which are still pending.

“If they take action now, the administration will increase our energy security and undermine Russia’s ability to use its energy to hold other countries hostage,” said Barrasso. “There’s bipartisan support in Congress for exporting America’s natural gas and we would welcome the President’s leadership on this important issue.”

Contact Nick Snow at nicks@pennwell.com.

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