Russian aggression in the Ukraine’s Crimea region appears to be a repeat of bad behavior. But the implications for the United States are far different than past episodes of the Russian military bullying its neighbors. This time it’s different. This time it’s about power—not ideological but energy—and natural gas to be specific.

Russian efforts at muscling Ukraine is designed to ensure Russia’s natural gas empire flows freely via Russia’s state owned powerhouse Gazprom—the world’s largest natural gas producer and fourth largest energy company on the planet. Protecting its estimated $360 billion in assets is just part one of the goal in Russia’s attempts to control Ukraine.

The other goal: expanding its related assets to the trillion dollar valuation that Russian leader Vladimir Putin promised in 2009. Military and political control is certainly part of the goal as well, but the mainstream media appears to view Russian military and political control as the single driver of the Russian invasion of Crimea—a vital strategic marker in the Black Sea. But make no mistake, Russian military action is about natural gas.

Sabre rattling by American politicians means little to Russia. However, calls to begin widespread U.S. exports of natural gas to Europe to offset Russia’s stranglehold on regional natural gas assets carries significant meaning for both Russia and American natural gas producers.

An estimated 16 percent of all of European natural gas flows through pipelines in Ukraine. Of Russia’s total exports, 50 to 60 percent flow through these lines. And as recently as 2012, it was 80 percent.

In 2009, following a pricing dispute between Ukraine and Russia, Russia completely halted the flow of natural gas through Ukrainian supply lines for nearly two weeks. In addition to crippling the Ukrainian economy and threatening Ukrainian homes during the middle of winter, the embargo revealed the weak European economic position due to its dependence on Russian gas.

Thus, during that embargo, Czech Republic gas supplies dropped by 75 percent. And Bulgaria had to stop production in its industrial facilities due to lack of power and heat. Slovakia declared a state of national emergency. Though other nations such as Germany, a leading importer of Russian natural gas, was better prepared with reserves to offset the losses, the glaring point was made. War is not needed to bring a nation to the negotiating table.

The issue of whether or not to export liquid natural gas (LNG) has been heating up in the United States during the past year. But recent Russia hostilities and its ability to hold Europe hostage to a major degree using LNG exports as an economic weapon has propelled the discussion to new heights. Nevertheless, the question has experts debating whether LNG exports would ultimately benefit or hurt American’s at home.

On one hand, exports certainly would be a significant economic driver benefiting U.S. corporate interests, as well as potentially creating thousands of American jobs. On the other hand, fear that such exports would ultimately drive domestic natural gas prices considerably higher for consumers is a real concern, in addition to possibly stressing supplies. Nevertheless, it seems the value of using exports as an effective counter action to Russia’s Soviet-style bullying of its neighbors has taken center stage.

House Speaker John Boehner and other Republicans have acknowledged the potential benefits of allowing widespread U.S. liquid natural gas exports to Europe. In a letter to leaders of several central European nations, Boehner called on President Obama to “immediately sign off” on the export process. And it’s not just a question of using exports as an “assault” against Russian natural gas dominance, but also as a defense as well. When Russia began to merely threaten an invasion of Crimea, U.S. domestic crude prices temporarily spiked even though the U.S. is not economically tied to the region under stress.

U.S. liquid natural gas exports to Europe will result in decreased profits for Russia’s Gazprom.

Stated in the recent New Republic’s article, The Crisis in Ukraine Could Hurt Your Wallet, “Any supply shocks in Europe that send prices higher will have ripple effects that raise gas prices in the United States… any sustained increase would take a bite out of consumers’ disposable income, hurting the entire economy.”

Though an in-depth analysis is yet to be seen whether or not LNG exports would affect domestic energy prices, many suspect that properly regulated exports would not significantly boost prices. In turn, it appears the United States is indeed nearing an export “approval status.”

European gas futures have risen significantly due to the Crimean Crisis. But with U.S. LNG exports to Europe come decreased profits for Russia’s Gazprom. And decreased profits to a state run industry means less income for the Russian government, less control over Europe’s future, and less influence in global markets. The bottom line: what the absence of “boots on the ground” can’t do, the United States’ emerging strength in the global energy struggle can, resulting in a weaker Russian position.


Eric Sharpe
About The Author Eric Sharpe
Eric Sharpe is editor and feature contributor of Energy Ink Magazine, which covers the energy industry in the Rocky Mountain West and Northern Plains. He holds a Master’s degree in Educational Technology from Pepperdine University.

You don't have permission to view or post comments.

Quick Search

Stock Watch

FREE Impact Analysis

Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!