3 Apr 2014 More

US Natural Gas Not a Threat to Russia

posted by Unknown @ 12:30 0 Comments

Natural Gas Not a Threat to Russia

For those out there who believe the US can use its huge reserves of natural gas to sway Russian influence in the Ukraine, they may just want to think again.  The US may very well have its supporters.  On top of that, it is expected to produce more than 2 tcf of natural gas this year alone.  But undercutting Russia’s role in the region is easier said than done.

In the oil and gas business, nothing is immediate.  For one thing, most US LNG contracts have already been promised to Asia—for the next two years.  Besides that, US gas supplies are a private business.  Unlike other countries where energy commodities are run by the government, these private companies make their decisions based on price, supply and demand, not geopolitical matters.

"Essentially the U.S. government cannot force that upon private-sector companies," says Tim Boersma, fellow at the Energy Security Initiative at the Brookings Institution. "There are rare examples of the government forbidding companies to sell a product somewhere, for example Iran, but to sell somewhere for arguably a lower price than the company could get elsewhere" is unrealistic.”

Not just a matter of who, where, and when

Besides that, the US oil and gas revolution is only five years into its existence.  In industry terms, that’s means it’s still in its infancy.  With not even 200 pipelines in operation, US infrastructure is woefully inadequate.  Case in point: Supplies of natural gas and propane could not even make their way to the American Northeast this winter from the South where record-cold temperatures created a shortage in supply.  To think that America can somehow divert massive resources to Europe is just a pipe dream.

Just look at the facts.  According to the CIA World Factbook, the US exported 46 bcm of natural gas in 2012.  While that may sound like a lot, Qatar exported 114 billion bcm, and Russia 200 bcm.  While a promising future lies ahead for the US, the numbers show that it is still down the road apiece.  Even now, there are 20 US companies awaiting federal approval for LNG export services.

But the need for an all-out confrontation may not even be necessary.  "You don't need to replace it all, you need to show Russia [Ukraine] has alternatives," says William Frohnhoefer, managing director of research firm BTIG.

The Russian economy is dangerously dependent upon natural gas and oil exports for revenue.  If Europe were to have an alternative source, this cut undercut the Russian hand considerably. "If Ukraine and other countries dependent on Russia can wean themselves away, they will be emboldened to seek other sources, and that would be the U.S.," says Frohnhoefer.

Besides, the primary market for US companies is made-up of countries which have free-trade agreements.  Right now, many European countries like the Ukraine do not have such agreements with the US.

Getting back to Asia, right now more than 80 percent of all contracts for US natural gas exports are committed by contract to countries in the Pacific Rim.  To pull out of those contracts could prove not only expensive and time consuming, but impossible.

The problem with the Ukraine

And there’s the mounting debt the Ukraine already has with Gazprom, the Russian state-run natural gas company.  Ukraine already owes Gazprom more than $2 billion and there’s no indication it can pay it anytime soon.  With the country in as much debt as it is, which American company is going to be the first to take on such risk?

"The problem is Ukraine doesn't have the ability to pay for this gas," Misra said, adding that Kiev "has been historically bad about paying gas debts. Even if we could ship this gas to Ukraine, they don't have the ability to pay for it,” says Kartik Misra, senior analyst at Energy Intelligence.

Misra believes it won’t be until at least 2016 before any LNG exports can reach the Ukraine.  By then, the crisis will be long over.

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