Ukraine crisis bolsters calls to send US natural gas to region – and what it may mean for NM

By Rob Nikolewski │ New Mexico Watchdog

SANTA FE — As the Russian incursion into Ukraine creates an international crisis and unsettles international markets, a call is being raised to send U.S. oil and gas into eastern Europe as a way to blunt Vladimir Putin‘s influence in the region.

Russia is “a tremendous energy power” and it’s “not afraid of using its energy power for geopolitical ends,” Steve Eule, vice president of Institute for 21st Century Energy, said in a conference call with reporters Tuesday. “And that argues for greater U.S. imports to Europe.”

The Russian power play has provided momentum for industry supporters, who have called on the Obama administration to approve free-trade agreements to export liquefied natural gas to markets all over the world.

“The Department of Energy’s approval process for LNG exports is unnecessarily putting our allies at the mercy of Vladimir Putin,” House Energy and Commerce Committee Chairman Fred Upton, R-Michigan, said in a statement. “Now is the time to send the signal to our global allies that U.S. natural gas will be an available and viable alternative to their energy needs.”

Increased production could mean very good news for states like New Mexico, which is home to the San Juan Basin, one of the largest natural gas reserves in the world.

Greater global demand likelywould increase the price of natural gas, and it’s been estimated that a simple 10-cent increase would generate $10 million more to the New Mexico’s general fund due to a windfall in oil and gas severance tax revenue.

“Because the price has been so low for the last five years or so, there’s only about four or five rigs up there (in the San Juan) operating today,” Wally Drangmeister, director of communications at the New Mexico Oil and Gas Association, told New Mexico Watchdog. “So that would be an opportunity, if the price were to come up a little bit … It could definitely encourage drilling activity there.”

On the other hand, it’s not a question of simply turning on a spigot.

“Yes, I agree the president should expedite the permitting of liquefied natural gas exports,” Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University, told New Mexico Watchdog. “But we’re talking about two to four years from the time the permit is granted until the facility is constructed and the infrastructure is in place to export this stuff.”

Russia raised the economic pressure on Ukraine on Tuesday when Putin announced he’s canceling price discounts on natural gas to Ukraine.

“The U.S. needs to get its LNG exports in place sooner rather than later,” Zach Allen, president of Pan Eurasian Enterprises Inc., which tracks LNG cargoes, told Bloomberg News. “Any supply source of LNG to increase the resilience of European markets to short-term swings would be a good thing.”

The Obama administration and Secretary of State John Kerry have been working on a $1-billion loan guarantee to Ukraine that would help offset higher energy prices. There’s no mention in the aid package of a plan to wean Ukraine from its dependence on Russia, which supplies nearly all of Ukraine’s natural gas through its state-run energy giant Gazprom.

In a study released Tuesday, Ukraine had the worst score among the top 25 energy users in an International Index of Energy Security Risk.

On Capitol Hill, U.S. Sen. Ron Wyden, D-Ore., chairman of the Senate Finance Committee, said he plans to ask Treasury Secretary Jacob Lew on Wednesday how the United States can respond economically to Russia’s actions in Ukraine.

“There are other sources (of natural gas), but it would be very difficult to replace the supplies that Russia provides the European market,” Weinstein said. “They are by far a domineering force.”

“I think an excellent principle is that the free flow of energy in a free-market system does a lot economically and to help at last mute countries that would like to use energy as a weapon,” Drangmeister said.

Contact Rob Nikolewski at [email protected] and follow him on Twitter @robnikolewski