March 24, 2014

Natural gas is a risky weapon against Putin

From economic impact to profit motives, questions abound.

The dust is settling from three weeks of discussion about using exports of U.S. natural gas to respond to Vladimir Putin’s annexation of Ukraine’s Crimea.

Apart from the oft-noted export infrastructure deficiencies and the problem of the price premium for Europe over current Russian gas, five other factors deserve careful consideration before changing our restrictive policy on exports:

• The effect on U.S. consumers and the economy of increased prices resulting from any supply squeeze accompanying a draw-down for exports.

How prepared would consumers be to embrace a spike above the current $5 per thousand cubic feet level? Would the nearly $15 experienced both in 2006 and in 2008 be acceptable?

And, in the face of the grudging recovery of the economy from the Great Recession, what would be the risk that such added energy costs could prove a job killer? Despite what natural gas executives may say, a 2012 Department of Energy study indicates exports are likely to put some upward pressure on prices.

• The cost of “buying Ukraine’s debt,” variously estimated at $35-65 billion.

America and the West face a daunting challenge in reordering their own economic houses. How willing are we to take on a nation that has twice in the past decade defaulted on obligations owed to the International Monetary Fund, all the while evidencing little interest in swallowing the bitter pills of economic reform and corruption eradication?

• The effect of exports of natural gas on our trumpeted goal of energy independence.

Such independence implies not just freedom from price and supply pressures of foreign energy producers in the Middle East and elsewhere, but also the ability of plentiful and cheap domestic gas to serve as a transition fuel from more polluting energy sources like coal, oil and gasoline to cleaner energy of renewables.

For years governors of natural gas producing states have pushed for incorporation of clean burning gas into the electricity generating structure, and adoption of CNG for transportation.

If U.S. natural gas becomes viewed, not as a vital national resource essential to guaranteeing energy security and the economic stability that accompanies such, but as other commodities — just something to be traded — how well will the long-term interest of energy independence be served?

• Making available for export the abundant natural gas resulting from new production technologies implies the environmental issues surrounding those technologies have been resolved.

The possible hazards of “fracking” may be settled in the minds of some, or may become settled as we move forward. Nonetheless, recent studies by the National Academy of Sciences report that, while evidence indicates seismicity and immediate pollution risks are low, the jury has yet to render a final decision.

• The whole episode involving Crimea has overtones of the rise of “influence capital” in foreign policy.

Events in the early days of the crisis hinted at Russian moves being affected by the fallout felt by wealthy oligarchs with business interests outside Russia.

When proponents of natural gas exports urge Washington to use that vital resource to accomplish geopolitical ends, should that suggestion not be met with skepticism that it might be more about passage of legislative measures aimed at generating industry profit than about serving the vital military, economic, energy and environmental security interests of U.S. foreign and domestic policy?

Rex J. Zedalis is a professor of law and director of the Comparative and International Law Program at the University of Tulsa. rex-zedalis@utulsa.edu

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