The U.S. hasn’t decided to sell natural gas to Ukraine just yet … but decision time is getting closer.
Surging natural gas production means the U.S. can easily afford to ramp up exports of the commodity. And countries like Ukraine, which are currently at the mercy of Russian energy exports, could stand to benefit.
Consider the situation in Eastern Europe, where it would be an understatement to state that Russia’s actions in Ukraine are tied to its oil interests. Ukraine’s position is incredibly weak. The country gets 70% of its natural gas from Russia. It is also a veritable export hub, given that more than a dozen other European countries receive natural gas that flows through Ukraine.
With natural gas production surging in the U.S., the country is in a position to increase exports, if it so chooses. Ukraine isn’t the only European country that could benefit. And it’s certainly not the only one interested in seeing the U.S. break Russia’s energy monopoly.
A full 30% of Europe’s energy comes directly from Russia. That stranglehold means European leaders seeking relief are increasingly turning their eyes west.
It’s no wonder why. This year, the U.S. is likely to surpass Russia as the world’s biggest natural gas producer. And next year, in 2015, the U.S. is likely to dethrone Saudi Arabia as the world’s number one oil producer.
The U.S. is growing natural gas production at such a rampant rate – by 44% between 2011 and 2040 –that even the U.S. Energy Information Administration predicts the country will be a net exporter of natural gas by 2020, if not sooner.
But for the U.S. to loosen Russia’s grip on Europe it will need to do more than simply turn on the natural gas export spigot. It will need to rewrite laws. At the moment, U.S. natural gas exports are constrained by a law that limits trade to countries that aren’t free-trade partners.
There are currently 20 countries with which the U.S. has free trade agreements, and Ukraine isn’t on the list. In fact, very few European countries are. Most are in Central and South America, and the Asia-Pacific region.
There is, however, one loophole that allows a shipment to a country that isn’t a free-trade partner. If the U.S. Energy Department ascertains that shipping the gas is in U.S. national interest, it can make an exception.
But according to the Wall Street Journal, the Energy Department has only approved six such natural gas export applications over the past few years. And right now, the U.S. needs to be absolutely sure it sends the right message to the world if it takes steps to allow natural gas exports to Ukraine.
That potential has some members from both the Republican and Democratic parties applying pressure to President Obama to get out his pen. And if the situation intensifies in Eastern Europe, that pressure will build.
We don’t know how this will work out but one thing is clear: the U.S. is in a rare position of strength with respect to its energy production and export potential. It has the potential to break Putin’s energy monopoly in Europe. And that means Washington needs to think decades into the future, not just weeks.
Because where the U.S. comes down on this issue, at this time, will set the stage for who its greatest allies in Europe will be in the coming years. And that has important implications for energy investors around the world.
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