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Russia-Ukraine gas deal ramps up debate on Capitol Hill about energy exports

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The deal struck Tuesday between Russia and Ukraine that would send Kiev $15 billion in loans and offer it cheap natural gas rates has ramped up Capitol Hill debate about whether to expand natural gas exports.

The move by Russian President Vladimir Putin lured the former Soviet nation away from a closer partnership with the European Union. It also highlighted the importance natural gas holds in Russia's foreign policy, a central revenue source for the nation that it also uses as a tool to cement relationships.

The geopolitical impact of boosting U.S. exports soon may get an airing on the Senate side, as Energy and Natural Resources Committee Chairman Ron Wyden, D-Ore., and ranking member Lisa Murkowski, R-Alaska, have discussed plans to hold a winter hearing.

"The prospect of U.S. liquefied natural gas injects new supply and competition into developing global markets, which benefits consumers by providing them more options and bargaining power, even if American LNG does not directly end up in Europe," said Republican Energy Committee spokesman Robert Dillon.

But the U.S. currently blocks natural gas exports to nations with which it lacks a free-trade agreement. The federal government must find such shipments to be in the public interest, say, by not significantly decreasing domestic supplies.

Some say expanding natural gas exports could deliver a blow to Russia, which has a stranglehold on markets in Eastern Europe and Central Asia, typically strong-arming trading partners into multi-decade contracts that are linked to higher oil prices. Tuesday's deal with Ukraine was illustrative of that dynamic, as state-owned Russian firm Gazprom will sell Ukrainian company Naftogaz natural gas for $268.50 per 1,000 cubic meters, compared with the current $400 rate, according to Reuters.

Representatives from the Czech Republic, Hungary, Poland and Slovakia — all Russian natural gas customers — have reached out to the Senate committee about natural gas exports. So have Japan and India, which have lobbied the Obama administration for expanded exports, as well as South Korea.

"I think the very real prospect that we will be expanding our natural gas exports ... gives more room for pro-democracy activists to argue that it may not just be in their human rights interest but also in their economic interests to [follow] a course more independent of Russia," said Sen. Chris Coons, D-Del., who serves on the Senate Foreign Relations Committee.

But others say the impact of U.S. exports will be limited.

"I think negligible is the right way to put it," said Tim Boersma, a fellow with the Brookings Institution's Energy Security Initiative.

Boersma said the global uptick in natural gas production — in which, through the shale energy boom, the U.S. has played a significant part — has pushed wholesale prices in European markets down. It also has forced Russia to unlink gas from oil prices when negotiating with some countries.

That speaks more to global oversupply than export strategy, Boersma said, noting that Asian nations — not European ones — would likely receive U.S. shipments.

"Only if Europe would be willing to pay a large premium, you could expect more LNG to come to the continent, and some people believe this, but I have serious doubts," he said.

Sen. Ed Markey, D-Mass., who has urged caution on expanding natural gas exports over climate change and price concerns, said the diplomatic argument glosses over some of the structural and economic dynamics underpinning global natural gas trade.

"Exporting natural gas to influence international political conflicts is a bad idea on its face, and highly impractical given Russia’s pipeline infrastructure and ability to control prices," he said.

Wyden has been in Markey's camp on the issue, as both have feared sending too much natural gas abroad would raise prices at home, undercutting a competitive advantage for energy-intensive manufacturers.

An Energy Department-commissioned study by NERA Economic Consulting in December 2012 found exports would minimally raise domestic natural gas prices.

Getting Wyden to back expanding exports on geopolitical grounds would be key for export proponents, which include a range of Democrats, Republicans and business groups.

So far, the Energy Department has green-lighted five export permits, accounting for 9.17 billion cubic feet per day -- about 13 percent of daily natural gas production, according to the U.S. Energy Information Administration. Boersma said he expects the global market, which is slated to include several new players around the world, would accept between 4 and 6 billion cubic feet per day from the U.S.

But Wyden is putting some daylight between his previous stance on exports in the wake of the Ukraine deal, which comes one day after the EIA revised its estimates for U.S. oil and gas production upward.

"The foreign policy aspect of natural gas is one that deserves thorough examination. We have new information coming from EIA so now may be a good time to take a step back and evaluate how the United States can get the biggest advantage from this enormous strategic asset," Energy Committee majority spokesman Keith Chu said.

That will be welcome news for the Republican-controlled House, which has pushed for expanding natural gas exports.

"With our newfound energy abundance, comes a new 'energy diplomacy' opportunity. Building upon what we have learned, the committee will continue to be engaged on the issue next year in the effort to break down export barriers," said Rep. Ed Whitfield, R-Ky., chairman of the House Energy and Commerce's Energy and Power subcommittee.

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