Ukraine's Neighbors Urge Expansion of U.S. Gas Exports

The crisis in Ukraine has injected a new element of Cold War politics, as well as a supporting cast of European diplomats and Washington lobbyists, into the debate on Capitol Hill over natural-gas exports.

Until now, the debate has broken down along familiar lines. The oil and gas industry and its Republican supporters have argued that larger exports of American liquefied natural gas would reduce the national deficit and create jobs.

Opposing them is a coalition of Democrats, consumer advocates, chemical companies and manufacturers who counter that increasing LNG exports would raise domestic gas prices, hurting both consumers and companies such as Dow Chemical and DuPont. Environmentalists who oppose fracking, meanwhile, fear that expanding exports will encourage more production.

But with Russian troops tightening their grip on Ukraine’s strategic Crimean Peninsula, the advocates for more U.S. gas exports have added what they hope will be a compelling geopolitical argument to their quiver: The Obama administration and Congress can use the nation’s enormous gas reserves as a weapon to help Ukraine and other European countries break their dependency on Russian gas and thereby reduce Moscow’s political leverage over them.

“Russia has repeatedly used its supply of natural gas to pressure Ukraine economically and politically, and has announced that it will significantly increase its cost in a deliberate effort to squeeze Ukraine,” California Republican Ed Royce, chairman of the House Foreign Affairs Committee, said at a hearing last week on the Ukraine crisis. “Fortunately, we have an option to counter this threat, namely reducing the current impediments to exports of American natural gas.”

Europe Weighs In

The Ukraine crisis also has brought new players to the debate. European officials who want to reduce their dependency on Russian gas also have seized on the situation to mount a major lobbying campaign in Washington for new legislation to ease regulations on American LNG exports. Some of these countries, including Bulgaria, Sweden and the Baltic states, rely on Russia for 100 percent of their gas supplies, and Moscow has shown repeatedly it is willing to crimp supplies for leverage in political disputes. Just last week, Russia’s state-owned Gazprom threatened to cut off gas exports to Ukraine over unpaid bills, as it did in 2009.

Over the past few weeks, ambassadors from Eastern and Central Europe, the Baltic states and Greece have met with Republican members of the House Energy and Commerce Committee, including Chairman Fred Upton of Michigan and Edward Whitfield of Kentucky, to plead for a liberalization of the laws and regulations that limit U.S. gas exports. They also have conferred with Republican Michael R. Turner of Ohio, who sits on the Armed Services and Oversight and Government Reform panels.

“The presence of U.S. natural gas would be much welcome in Central and Eastern Europe, and congressional action to expedite LNG exports to America’s allies would come at a critically important time for the region,” the ambassadors of Hungary, Poland, the Czech Republic and Slovakia wrote in a letter last week to Speaker John A. Boehner, R-Ohio, another outspoken supporter of expanding gas exports. “Energy security is not only a day-to-day issue for millions of citizens in our region, but it is one of the most important security challenges that America’s allies face in Central and Eastern Europe today.”

Legislative Battles

While some lawmakers want Obama to make the decision on the basis of existing law, the Ukraine crisis has prompted others to introduce rival bills to improve the legal climate around their respective policy preferences.

There is no ban on U.S. gas exports, but U.S. law only expedites them to countries that have free-trade agreements with the United States. Under the Natural Gas Act of 1938 (PL 75-688), exporters must apply for a permit, which requires the Energy Department to decide whether the shipments are in the “public interest.”

Last week, Colorado Republican Cory Gardner and other members of the House Energy and Commerce Committee introduced legislation that would expedite the export of LNG to Ukraine and other European countries. The bill (HR 6) would accomplish this by widening exports beyond free-trade countries to states belonging to the World Trade Organization. The measure also would require immediate approval of two dozen pending export application.

In the Senate, Wyoming Republican John Barrasso introduced a bipartisan bill (S 192) that would characterize LNG exports to NATO countries as in the public interest, thereby speeding up their approval. “Natural gas exports will help our allies in Europe,” Barrasso said.

On the other side of the issue, Massachusetts Democrat Edward J. Markey, chairman of the Senate Foreign Relations subcommittee that oversees international energy security, introduced a bill (S 2088) last week that would require the Energy Department to weigh the impact of increased gas exports on consumers, the economy and foreign policy. That would further complicate the administration’s process for approving overseas sales of LNG.

Markey argues there’s no guarantee that relaxed export regulations will result in exports to Europe, noting that Asian markets are much more attractive.

“We should not give away the domestic economic and national security rewards of our natural gas boom, and then just hope that the market reduces the risk of international conflicts,” Markey said in a release. He noted that infrastructure limitations in the United States and Europe would delay any increased gas exports for at least two more years.

Despite a vigorous lobbying campaign by environmentalists and the U.S. chemical industry, Markey’s bill faces an uphill battle even in the Senate, where several Democrats from oil- and gas-producing states along with incumbents facing tough re-election challenges in red states support increasing gas exports.

Enter the Lobbyists

Meanwhile, support for easing LNG export restrictions could be bolstered by more than a dozen Nordic, Central and Eastern European governments. Diplomats from these countries are in discussions with Washington lobbying and public relations firms to form a consortium that would push for passage of the Gardner and Barrasso bills.

With an eye toward a long-term shift in the way Europe gets it energy, the European diplomats also want to make sure American LNG is included on non-tariff schedules in the Transatlantic Trade and Investment Partnership, a free-trade agreement now being negotiated between the United States and Europe. The coalition is also in talks to bring in major players in the oil and gas industry.

“The key player here is the United States,” said Rolandas Kacinskas, deputy chief of mission at the embassy of Lithuania, one of the countries involved. “If the United States is on board with liberalized gas exports, it would be a market changer.”