(March 28, 2014) Europe is prospecting for gas in the wrong place in asking for U.S. LNG.
By Lawrence Solomon, published by the National Post on March 28, 2014
The U.S. Senate wants to teach Russian President Vladimir Putin a lesson for annexing the Crimean Peninsula. “We should use our energy prowess to break the tyrants who use their energy stockpiles to crush hopes of freedom and democracy,” stated U.S. Senate energy committee chair Mary Landrieu this week, one of many calling for increased exports of Liquefied Natural Gas, or LNG, to Europe.
Lithuania agrees. “I am also here to plead with you and your colleagues to do everything within your power to expedite the release of some of your abundant natural gas resources into the world market, especially to those nations beholden to [a] monopolistic supplier,” testified the country’s energy minister Jaroslav Neverovič, who fears Putin has Lithuania in its sights.
Their geopolitical strategy — to reduce Europe’s dependence on Russian gas with U.S. LNG — is wrong-headed: A second-rate solution at best, more likely a perverse policy that would see Europe’s dependence worsen.
Liquefying natural gas to transport it by ship is expensive — after the UK replaced its declining North Sea gas with LNG a decade ago, its gas costs more than doubled. Because Russia with its vast amounts of natural gas will always be able to undercut U.S. LNG gas shipments to Europe, the U.S. or European governments would need to massively subsidize U.S. exporters to get them to ship to Europe, creating an inherently unstable trading relationship. Much better to let U.S. LNG flow to Asia, where prices are higher because of Japan’s enormous post-Fukushima energy needs. Those exports to Asia, which would compete with Russian LNG sales, would in any case serve a geopolitical interest by lowering Russia’s revenues.
Europe is prospecting for gas in the wrong place in asking for U.S. LNG. Rather than complaining of being beholden to a Russian monopoly and pleading to the U.S. Senate for assistance, for example, the Lithuanian energy minister could instead do his pleading to his own countrymen. Last year, after Chevron won a tender to drill for gas in an area of Lithuania estimated to hold 113 billion cubic metres of potentially recoverable shale gas, the Lithuanian government introduced some two dozen new conditions, including a 250% increase in its tax rate, from 16% to 40%.
Chevron’s Lithuania operation bitterly abandoned its tender, saying “far from all politicians were friendly towards the Americans.” Many Lithuanians, rather than kicking themselves for losing an opportunity to get out from under the Russian thumb, expressed glee. “I will light up a candle at church just to make sure Chevron leaves,” enthused one prominent politician in the governing coalition.
The situation is much the same in other countries of the former East Bloc, where legislators change the rules at whim on the multinationals trying to make these countries energy abundant. Ukraine, despite years of hardball tactics by Russia and despite its own enormous energy potential, has yet to deal straightforwardly with Western multinationals. Even Poland, a Western-oriented former East Bloc country with good reason to fear a renewed Russian Empire, has been unwelcoming to multinationals that could bring them security: Exxon Mobil, Marathon and Talisman have all withdrawn from shale gas plays, all frustrated by rules made up on the fly.
France, Germany and other countries in Western Europe are better at sticking to deals but they, too, mostly on environmental grounds, compromise security by eschewing energy development. Europe’s total shale gas deposits rival those of the U.S. but it would rather the U.S. bear the political risk of their development.
President Obama, to his credit, is pushing back. “The truth of the matter is that just as there’s no easy, free, simple way to defend ourselves, there’s no perfect, free, ideal cheap energy sources,” he said in Western Europe Thursday, in asking Europe to assume more responsibility for its own welfare. “Every possible energy source has some inconveniences or downsides.”
According to the International Energy Agency, the EU’s overall energy dependency, already at an abysmal 60%, is set to rise to 80% by 2035. U.S. LNG could not make Europe secure under any plausible scenario. Obama should hold fast and force the Europeans to accept the energy consequences of their own actions. They need to come to grips with whether they value their own sovereignty. The rest of the West can best help by requiring Europe to sink or swim. After gasping for air, they’ll swim.
Lawrence Solomon is executive director of Energy Probe.