Ever since the crisis in Ukraine began, oil and gas interests have been arguing that the U.S. could roll back the Russian incursion in Crimea if only we “fast-track” U.S. exports of liquefied natural gas.
There is an easy logic to this argument — provided you ignore some awkward arithmetic. Russia has been selling gas to Ukraine at the bargain price of about $7.50 per million British thermal units. Germany, by contrast, pays about $11. Meanwhile, gas in Oklahoma costs around $6, suggesting U.S. producers could beat OAO Gazprom’s price.
Trouble is, it’s a long way from Oklahoma to Kiev. Liquefying and shipping U.S. gas to Ukraine could double its cost to more than $10.
U.S. exports cannot provide Ukrainians with the cheap gas they need. In fact, the U.S. price would barely compete with the most expensive Russian price in Europe. Worse, if U.S. exports are expanded, U.S. gas won’t primarily go to Europe; it will go to Japan, China and Korea, all of which will outbid Europe because they currently pay the Organization of the Petroleum Exporting Countries around $16 for LNG.
Cheaper gas in Tokyo will please the Japanese. But it won’t free Ukraine from Russian blackmail or stiffen Europe’s spine. Only Russia can provide Europe with bargain gas. The reason is simple: Cheap gas, the world over, is local gas, delivered via pipeline. Russia’s natural gas power play is rooted in geography.
Do we want to undercut American manufacturing and households, which are benefiting from cheaper American gas, to help our Asian competitors produce products more cheaply and help the oil and gas industry raise prices? That’s the real issue raised by the debate over U.S. liquefied gas exports, which will neither help Ukraine nor hurt Russia.
Empty claims that U.S. gas exports will weaken Russian President Vladimir Putin overlook the real threat. Oil, not gas, is what gives Putin the power to play global hardball. Three-quarters of Russia’s energy revenues come not from natural gas, but from oil.
Calls to export U.S. gas simply ignore this truth. When the crisis in Crimea began, German Chancellor Angela Merkel told President Barack Obama that Putin was out of touch with reality, in “another world.”
Sadly, it’s Putin who lives in the real world — one of $100-per-barrel oil. Earlier this month in Houston, at one of the largest oil industry conferences of the year, Chevron Chief Executive Officer John Watson announced that rising energy production costs would keep energy prices high indefinitely. “If $100 is the new $20,” he said of oil’s price, «consumers will pay more for oil.»
The oil industry believes that consumers are inured to gasoline at $4 per gallon or more — even though very little of the world’s oil costs that much to pump and deliver. (Gas shouldn’t cost the Asian LNG price of $16, either.)
Why are oil (and LNG) overpriced? Because the entire industry free-rides on OPEC’s price manipulation. The game is simple. Saudi Arabia withholds enough oil to raise the price to $100. Qatar then pegs its LNG price to oil. This joint cartel fattens Putin’s coffers and enables him to play gas politics with Europe. Putin makes his money on oil and gets his power from gas. With those two aces, he can ignore the threat of economic sanctions and tighten his grip on Crimea.
The U.S. is not helpless. In fact, we could still support Ukraine while also strengthening our economy. First, export technology, not gas. We should help Poland extract abundant, local — thus affordable — shale gas, creating competition for the Russians.
Second, help Ukraine slash its outlandish waste of imported gas. Ukraine uses four times as much energy for every unit of value produced as Germany does. Globally, only Uzbekistan wastes more energy. Even catching up to Russia in energy efficiency would save Ukraine as much as the discount it receives on Russian gas. Becoming as efficient as Poland would effectively cut the cost of gas in Ukraine by two-thirds.
Finally, launch and sustain a U.S. commitment to reducing domestic oil reliance. Increased efficiency, electric vehicles and advanced biofuels in the U.S. can undermine Russian power. Keeping U.S. gas at home to power truck fleets — producing oil savings of perhaps 3 million barrels per day — could cut global oil and LNG prices by 20 percent and Russia’s petro-profits by one-third. Within a decade, the U.S. could eliminate our $300 billion bill for oil imports, deter petro-diplomacy and stabilize the climate as well.
Carl Pope is a former chairman of the Sierra Club.