October 27, 2014

Liberalizing U.S. Energy Trade Can Promote European Security

Reuters/Scanpix
A fisherman stands in his boat as a liquid natural gas tanker (LNG) passes the coast near Havana on June 28, 2009.
A fisherman stands in his boat as a liquid natural gas tanker (LNG) passes the coast near Havana on June 28, 2009.

For much of Central and Eastern Europe, all gas pipelines still lead to Moscow. Despite over two decades since the Soviet collapse, infrastructure continues to tie former members of the Soviet Union to Russia. U.S. LNG exports to Europe would strengthen European security by reducing this dependency while promoting investment in the U.S. gas industry, but archaic U.S. law revising lng export process ebinger avasarala/revising the lng export process.pdf prevents gas exports without regulatory approval finding these exports congruent with the national interest – in recent years, a lengthy and unlikely prospect. The result of the regulation is a de facto ban on U.S. gas exports to Europe. As tensions have risen with Russia, the United States has bolstered its European allies with military materiel and personnel, but has neglected the fundamental benefits of trade liberalization.

For much of Central and Eastern Europe, all gas pipelines still lead to Moscow. Despite over two decades since the Soviet collapse, infrastructure continues to tie former members of the Soviet Union to Russia. U.S. LNG exports to Europe would strengthen European security by reducing this dependency while promoting investment in the U.S. gas industry, but archaic U.S. law revising lng export process ebinger avasarala/revising the lng export process.pdf prevents gas exports without regulatory approval finding these exports congruent with the national interest – in recent years, a lengthy and unlikely prospect. The result of the regulation is a de facto ban on U.S. gas exports to Europe. As tensions have risen with Russia, the United States has bolstered its European allies with military materiel and personnel, but has neglected the fundamental benefits of trade liberalization.

The vulnerability of gas supplies has been particularly visible in Ukraine where conflict has led to a suspension of gas flows from Russia, which supplies the majority of Ukraine’s gas imports. Ukraine has prepared for a protracted disruption by increasing gas storage and reverse flowing gas from Central Europe through pipelines which typically export gas. Gas storage and reverse flows will mitigate the effects of a Russian cut off, but despite these efforts, Ukraine still may have insufficient supply to sustain the peak gas consumption of winter season should Russian disruption continue.
Similarly vulnerable are the Baltic states of Estonia, Latvia, and Lithuania, which together with Finland are entirely dependent on Russia for gas supplies. Unlike Ukraine, however, these countries have no significant gas production to offset Russian imports; only Latvia has significant storage capacity. Most problematic is that the Baltic states and Finland are natural gas “islands,” isolated from the rest of the EU gas network. In the event of a disruption of Russian supply, these countries would have no alternate source for gas. Projects such as Balticconnector and the Poland-Lithuania Gas Interconnector are important for linking these “islands” to the rest of the EU gas network, but are still some years from completion.
In each of these instances, the root of the vulnerability is not that Russian gas is imported in high quantities, but that infrastructure connecting these countries to alternate suppliers is lacking. Natural gas is largely a regional commodity, traded only between areas linked by pipelines, and in much of the region, Russia is the only supplier. However, LNG technology is enabling the development of a global market for natural gas integrating presently isolated regional markets, increasing their resilience to supply disruptions. If other suppliers are available, even at a higher cost, European countries gain bargaining power over gas prices and Moscow loses the incentive to disrupt supplies. This process has already begun in Lithuania, where the anticipated Klaipeda LNG terminal enabled the country to negotiate a 20% reduction in Russian gas prices, the first such reduction in Lithuania’s history.
An end to the regulatory ban on U.S. gas exports to Europe will facilitate the transition from insecure regional markets to a more stable global market for natural gas. Even if only small amounts of gas initially flow between the U.S. and Europe, assuring the legality of these transactions will signal that U.S. supplies are open, promoting the development of LNG infrastructure. The resulting increase in global LNG supply will continue to lower the price of LNG for Europe making options similar to Lithuania’s Klaipeda terminal more viable for other countries dependent on Russian supply. In turn, the expansion of eligible markets for American gas will incentivize continued investment in U.S. gas production.
Opening U.S. gas supplies to Europe won’t immediately resolve the vulnerabilities in Ukraine and the Baltic, but linking the world’s largest importer of natural gas with its largest gas producer is a significant step towards a global market where gas is traded based on the basis of market opportunities instead of geopolitical conditions.
Jordan Kearns is a 2014-15 US Fulbright Research Fellow to Estonia.
Note that views expressed in this work are entirely those of its author and do not represent the views of the Fulbright Program, the U.S. Department of State or any of its partner organizations.

Filed under: Blog

No comment yet, add your voice below!


Add a Comment