EU/US : WILL GAS EXPORTS BE WASHINGTON'S WEAPON IN UKRAINE CRISIS?
"There is one other step we could take that in my view would really give us a hammer over Russia," Congressman Ed Royce (Republican, California), chair of the House Foreign Affairs Committee, said at a recent hearing on Capitol Hill. Royce noted that half of the Russian state's budget
came from oil and gas export revenues and much of that came from Eastern Europe, where Gazprom has a near monopoly. Thus, to hit Russia where it hurts, he argued, Washington should ease longstanding restrictions on US gas exports and send some of the gas to Ukraine and Russia's other neighbours. "It might take time but once we made that signal, investors would then put up the terminals necessary for us to do it," he said.a"I'm all for it," responded Secretary of State John Kerry. But Kerry noted that it was the US Department of Energy (DOE), not the State Department, that was the lead agency. Putting a positive spin on the situation, Kerry noted that the DOE had given the green light for six export projects. Royce responded that 24 applications were still pending.
Which begs an obvious question: why do these restrictions exist in the first place? In fact, the procedure for exporting US gas that forces the DOE to decide whether each export application is "in the national interest" has existed since 1938. While it is commonplace for countries to consider national security when regulating trade in energy, the law is fast becoming obsolete in the US. Since about 2008, the US has seen a boom in shale gas production that is transforming it from a net importer to net exporter of natural gas. So much so that liquefied natural gas (LNG) import terminals built in the 2000s are being re-converted into export terminals, a process that takes several years. Secretary Kerry noted that the first major export project would take effect in 2015.
For the foreign policy community in Washington, liberalising gas exports is a no-brainer given how powerful a political weapon it could be. But other interests have a different take. The restrictions have kept gas prices low in the US and this benefits heavy industry, which consumes a lot of energy. Manufacturing giants like Dow Chemical have argued that the current system creates US jobs by giving manufacturers a competitive edge over firms in countries where gas is pricier. But gas producers and exporters, keen to expand into new markets, reject this argument. They see the policy as the government unjustly subsidising one sector to the detriment of the wider US economy. Congress is considering several bills to liberalise exports. The Ukraine crisis should increase their chances of passage.
The US has not got much other leverage over Russia. Like the EU, the US is imposing travel bans and asset freezes on the officials responsible for annexing Crimea. Even if the US follows this up with a trade embargo, it will have limited effect as the US only accounts for a small share of Russia's foreign trade. Previously, the thinking around Washington was that the obvious destinations for LNG exports would be energy-hungry Asian allies like Japan and South Korea. But political pressure is mounting to send some across the Atlantic to help East European countries like Poland, Bulgaria, Latvia, Lithuania, Estonia and Ukraine become less dependent on Russian oil and gas.
Russia's main trade partners
Russia's total foreign trade for 2012 was US$525 billion. The country that Russia exported most to was the Netherlands, with 14.6% of total exports. China was the country that Russia imported the most from, 16.5% of the total. By contrast, only 4.9% of Russia's imports came from the US and 2.5% of its exports went to the US, according to Russian government trade figures.
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|Date:||Mar 26, 2014|
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