Ukraine crisis: Could US energy save Ukraine?

Ukraine's dependence on Russia for natural gas has long created friction between the two countries. The US could offer Ukraine and Europe an alternative supply, but exporting oil and gas has proved technically and politically difficult in a country scarred by energy shortages of its own. 

Ukraine needs energy. The US has a lot of it. Why not send American oil and gas to Ukraine, thereby lessening its reliance on Russia and easing a delicate situation in Eastern Europe?

It's a question many in Washington and the energy industry are asking as Russia leverages its own energy largesse to keep Ukraine in its orbit. But the US has long banned oil exports to maintain its own energy security, and has only recently begun to approve large, expensive terminals that would export liquefied natural gas (LNG).

Even with all the permitting in place, boosting energy exports is not an overnight solution – at least not in the case of LNG. Those terminals can take years to build and ramp up exports, and producers may be more interested in shipping to the higher-price markets in Asia and Latin America. Exporting oil could technically happen much more quickly, but it is a delicate political debate that has only begun to evolve after decades as a nonstarter. 

A North American oil and gas production boom has sparked a push to loosen restrictions on US energy exports put in place after the 1970s Arab oil crises. The unfolding crisis in Ukraine is shifting that debate into high gear.

"If Putin really wants to draw lines in sand, we have the capability to not just develop LNG in a orderly manner, but to essentially make an all-out effort to make our energy resources available to Europe in a very rapid manner," says Andy Weissman, senior energy adviser at Haynes and Boone, a Dallas-based global law firm.

US natural gas production rose 7 percent in 2011 and 5 percent in 2012, according to the US Energy Information Administration. Growth has since slowed – rising only 1 percent in 2013 – but current estimates show production continuing to rise through 2040 and the US becoming a net LNG exporter by 2016.

Since 2011, the US Department of Energy has approved six terminals to export LNG to countries that do not currently have free-trade agreements with the US. After a roughly two-year pause, DOE resumed the permitting process approving terminals at about a pace of one per every two or three months. The most recent action was last month's approval of Sempra Energy's Cameron in Louisiana to export up to 1.7 billion cubic feet per day.

The Sabine Pass LNG project in Louisiana, which received DOE approval in 2011, is the furthest along in development, Mr. Weissman says in a telephone interview, but is not likely to go online for another two years. Freeport LNG in Texas, approved last May, could begin exporting substantial gas within three years, he says.

If necessary, accelerating LNG exports and opening up oil exports could displace Russia as the primary energy supplier to Europe, Weissman says. That would deal a devastating blow to Russia's economy, which relies on oil and gas for about half of its revenue. 

The department's review process has come under criticism from those who say the pace of the permitting has not kept up with the rapid expansion in US gas production. Those critics have found new voice as the Ukraine crisis makes readily apparent the need for gas in overseas markets.

"The United States has abundant supplies of natural gas – an energy source that is in demand by many of our allies and the U.S. Department of Energy’s excruciatingly slow approval process amounts to a de facto ban on American natural gas exports that Vladimir Putin has happily exploited to finance his geopolitical goals," House Speaker John Boehner (R) of Ohio said in a statement Tuesday. "We should not force our allies to remain dependent on Putin for their energy needs."

Some oppose expanded natural gas exports on environmental grounds. More exports means a rapid expansion of controversial drilling techniques, critics say, particularly in areas that aren't used to the local environmental and social impacts that can come with oil and gas extraction. Shipping LNG overseas might also boost the historically low natural gas prices that households and industries have enjoyed in recent years. 

In a fact sheet released Tuesday, the White House said the US will support Ukraine in "withstanding politically motivated trade actions by Russia, including in the area of energy."

"[T]he United States is ready to provide assistance and financing to help Ukrainian businesses find new export markets and adjust to trade pressures and to enhance energy efficiency, helping to reduce dependence on imported gas," the statement from the White House read.

An Energy Department official reiterated the White House position Tuesday and defended the permit review process.

"[T]he Department remains committed to an expeditious and responsible process," DOE spokesman Bill Gibbons said in a statement e-mailed to the Monitor Tuesday. "We continue to make public interest determinations on a case-by-case basis, carefully considering economic, energy security, environmental and geopolitical impacts, among other factors.”