US gas not panacea for Crimean crisis

WHILE the Crimean crisis has focused attention on the need for energy diversification globally, experts agree that the United States shale gas revolution is years away from being able to plug that hole or to serve any current foreign policy objective in a big way.

And even when US gas exports do enter the market three to five years from now, it is likely that it will be Asia - Singapore included - that will feel the effects, more so than the Eastern Europeans currently lobbying for US energy exports.

"This crisis underscores for everyone the uncertainty of doing business with Russia," said Mr Edward Chow, formerly Chevron's principal international representative in Washington. "But all these plans, because of the nature of the industry, take time to implement. There are no easy solutions for this year."

In recent weeks, Washington has come under increased pressure to expedite energy exports as a means of undermining Russian influence in Ukraine and Eastern Europe.

The advances in hydraulic fracking technology in recent years have rapidly turned around the fortunes of the US energy industry - turning it from an energy importer to potentially the largest natural gas exporter in the world. In the US, some are now heralding a "golden age of gas".

House Speaker John Boehner recently issued a statement and wrote a commentary in the Wall Street Journal, in which he argued: "The ability to turn the tables and put the Russian leader in check lies right beneath our feet, in the form of vast supplies of natural energy."

Similarly, ambassadors from Hungary, Poland, Slovakia and the Czech Republic have made an appeal to Congress to support faster approval of natural gas exports.

The idea is that Eastern Europe - which currently depends on Russian gas for a large proportion of its supply - could loosen its ties with an increasingly aggressive Russia if only the US would send the region some gas.

Mr Chow, now a senior fellow at the Centre for Strategic and International Studies, said that while the idea could make sense in the long run, it has little relevance to Crimea now. The US simply does not have the infrastructure to export the gas yet and Eastern Europe does not have the ability to import it.

"Ukraine doesn't even have an LNG receiving terminal and if it were to start building them tomorrow, it wouldn't be ready for a few years," he said.

And while Poland is currently building a receiving terminal, Hungary, Slovakia and the Czech Republic do not have a coastline.

The first LNG - liquefied natural gas - export terminal in the US will not come online until at least the end of 2015.

And experts said the difficulty in funding, and the construction and operation of these billion-dollar projects, mean that permits are unlikely to be the bottleneck. As it is, the US had been approving a project every two to three months last year.

Indeed, the Obama administration has thus far not indicated any desire to pursue the energy angle as a means of resolving the Crimean crisis, despite Mr Boehner's comments.

President Barack Obama and interim Ukrainian Prime Minister Arseniy Yatsenyuk did not mention gas exports in their remarks. The only sign of any bilateral action on energy was the State Department saying that special envoy for International Energy Affairs Carlos Pascual will head to Kiev this month for a meeting of the Energy Security Working Group that focuses on boosting Ukraine's energy security.

But even if the gas revolution will not help the Crimean situation now, could it be important to US foreign policy in the long run?

Opinion is divided on this point, primarily over how much control the US can have over where the gas ultimately goes.

Ambassador Robert Blackwill, the Henry Kissinger Senior Fellow for US Foreign Policy at the Council of Foreign Relations, and Harvard University energy and international affairs expert Meghan O'Sullivan wrote that the natural gas boom would sharpen America's ability to get international support for sanctions on countries like Iran, backed by the promise that the US could make up for the shortfall in gas it would cause.

They said that it would also give those negotiating the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership more leverage as US companies do not need permits to export to countries that have an existing free trade agreement with the US.

They added that for the many countries in Asia and Europe that want to add US natural gas imports to their energy mix, achieving this special trade status holds extra value. In fact, this incentive proved crucial in convincing Japan - hungry for gas in the wake of the Fukushima disaster - to join the talks for the TPP.

Yet, any possible leverage is undercut by how export decisions will ultimately be determined by the market.

For instance, Mr Chow said that even though the Eastern European countries are the ones pushing for more US gas exports, the gas will probably end up on Asian shores.

"These are commercial transactions. We can't order our companies to sell LNG to anybody. And it's more likely it would go to Asia than Europe because prices are higher," he said.

Where there is consensus is on its long-term economic impact. The introduction of US gas into the market would introduce the American pricing model, de-linking global gas prices from oil prices.

That would also pave the way for a new gas trading market in Asia, an area that experts said Singapore is well-placed to take advantage of.

Said Mr Chow: "Asia has a very rigid market where the Japanese have to take the gas they are contracted (to), whether they need it that month or not. And I think this presents an economic opportunity for somebody."

What is needed is a way for Japan to sell that excess gas to someone else in the region, which is only possible through a trading hub.

He added: "You look at China, Taiwan, South Korea and Japan, none of them would trust having a trading hub in one of those other places, but Singapore has always been neutral territory as far as the oil business is concerned."

jeremyau@sph.com.sg

Get a copy of The Straits Times or go to straitstimes.com for more stories.

[[nid:89571]]