The power struggle between Russia and its Eastern European neighbors is playing out again on the heels of the European Union’s Eastern Partnership summit. The United States can change the political dynamic between Russia and its Central and Eastern European neighbors. The possibility of U.S. liquefied natural gas (LNG) coming onto the world market could markedly change the balance of power in European energy markets and have significant strategic consequences.
Currently, Russia holds a tight grasp on Eastern European energy supplies, and it hasn’t been shy about using that supply as a way of wielding additional leverage in its relations with its neighbors from the former Soviet Union and Warsaw Pact. An example of this is the deal struck between Russia and Ukraine over $15 billion in loans and natural-gas subsidies this week, which is a tactical victory for Russia just as thousands of Ukrainian protesters are asking their government to move closer to the European Union.
However, U.S. liquefied natural-gas exports to Europe could significantly undermine Russia’s regional influence. Several countries neighboring the Baltic Sea, including Finland, Estonia, Latvia and Poland, are considering importing U.S. liquefied natural gas to increase supply and help bring down prices. Lithuania’s planned terminal just received the green light from the European Union, with plans for it to be built by 2015. A pipeline will link the terminal to the country’s natural-gas grid, and may serve as a conduit to neighboring states.
America’s shale-gas revolution has opened up the possibility of large-scale U.S. liquefied natural-gas exports. Abundant U.S. natural-gas resources have put steady downward pressure on natural-gas prices in recent years. Indeed, the United States is poised to become the world’s leading oil and natural-gas producer by 2015, according to the International Energy Agency.
While much U.S. liquefied natural gas will ship to Asian markets, several European nations are betting that increased global supply will be available for them, too. The United States could export up to 10 billion to 15 billion cubic meters of liquefied natural gas per year to Europe starting in 2020, according to an analysis by Wood Mackenzie.
Despite recent declarations from Russia’s OAO Gazprom that it is unfazed by the prospect of U.S. liquefied natural-gas exports, this global natural-gas producer and major gas exporter is undoubtedly looking at developments in the United States with trepidation.
Russia, clearly threatened by that move, recently announced plans to construct its own LNG terminal in the Kaliningrad region, wedged between Poland and Lithuania, which would serve as a competitor to the Lithuanian import terminal. Russia is clearly feeling the heat.
Central European nations are also eyeing U.S. liquefied natural-gas exports. In a recent op-ed in The Washington Post, high-ranking diplomats from Hungary and the Czech Republic urged the United States to move forward on shipping natural gas to Europe.
“Look to the Visegrad Four (Hungary, Poland, the Czech Republic and Slovakia) to find some of the United States’ most passionate allies,” the diplomats wrote on Oct. 10. “We have long recognized the importance of reducing dependence on a single source of gas and are eager to achieve real competition. The U.S. natural-gas boom raises the prospect of a reliable trade partner for our region.”
European countries see LNG exports from the United States as a way to diversify their energy sources and lessen dependence on Russia for energy. Russia sees this potential diminishment of its influence. While this sounds like a positive development for the United States and its geopolitical position, there is a catch.
European energy security, particularly in Eastern Europe, is inextricably linked to regulators in Washington. In order to export liquefied natural gas from the United States to a country without a free-trade agreement, which includes all the countries of Europe, an exporter must apply to the U.S. Department of Energy for an export license. The Department of Energy has the power to determine whether an export-license application is in the “public interest.”
The Energy Department has approved five applications (four of those conditional) to export natural gas, while more than 20 liquefied natural-gas export applications remain pending in a regulatory queue, the longest for more than 700 days. Many of these projects will never even be built, given the logistical, financial and state regulatory hurdles still to come.
The United States has the capacity to meet both domestic and international natural-gas demand, and lessen the price of energy for consumers here and abroad. These lags in federal regulatory approvals are in danger of stunting the nascent U.S. liquefied natural-gas export business.
It would be useful for European diplomats to urge their U.S. counterparts to move expeditiously in approving more liquefied natural-gas projects. Here’s hoping that Europeans can find a way to express uniformly to the Obama administration the need to move swiftly on natural-gas exports to Europe.
Guy Caruso is senior adviser in the Energy and National Security Program at the Center for Strategic and International Studies and the former administrator at Energy Information Administration.