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Ukraine crisis new rallying point for U.S. energy export backers

By Timothy Gardner

WASHINGTON (Reuters) - Supporters of U.S. energy exports have pounced on the crisis in Ukraine to press their case for faster approvals of liquid natural gas (LNG) projects and for an end to the decades-long ban on exports of most U.S. crude oil.

LNG supplies from the United States could help some Western European countries react to any Russian aggression in coming years, but because of added transportation costs the fuel could be too expensive for others in Central Europe who are likely to remain dependent on neighbors, energy experts said.

As President Vladimir Putin's forces tightened their grip on the Crimea peninsula in the Ukraine on Monday, the moves heightened concerns that the crisis could widen and that Russia could slash its shipments of natural gas to Europe, about half of which are sent through the Ukraine via pipeline.

The United States is the world's top natural gas producer, due in recent years to hydraulic fracturing, known as fracking, and horizontal drilling. Surplus U.S. energy could go a long way to providing Europe an alternative to Russian supplies, supporters say.

"Russian oil companies and the Russian state would view U.S. energy exports as the chief competitor to one of their target customers - that being Europe," said Joe McMonigle, who served as chief of staff at the Department of Energy under former President George W. Bush.

The view that President Barack Obama could brandish energy exports as a tool to deflate Russian power over Europe is one espoused by many in U.S. foreign policy circles.

"The U.S. energy transformation of recent years gives us options we didn't have several years ago. So we ought to explore using those options," said Richard Haass, the president of the Council on Foreign Relations think tank.

Since 2011, the U.S. Department of Energy has conditionally approved six proposals to export LNG to countries with which the United States does not have free trade agreements.

The approvals total some 8.5 billion cubic feet per day of LNG - more than the 6 bcf per day Russia exports through pipelines through the Ukraine to Europe. More than 20 U.S. projects want approvals.

But it is uncertain how much of that would be available to Europe as countries in Asia have entered contracts to buy much of it.

McMonigle and other supporters of unfettered exports have classified the DOE's approval rate as a "go-slow" approach, especially given the lead time between approval and actual exports.

U.S. LNG exports are not expected to begin in full until at least 2017. In the meantime, supplies from other global exporters including Australia, Canada, and Qatar could rush in to help fill European demand.

And new supplies of U.S. light sweet crude may not be an ideal substitute for Russia's heavy sour oil.

Nobody expects the Obama administration to quickly void the 40-year-old ban on oil exports based on one crisis. Some U.S. lawmakers are concerned that exporting crude oil would translate to higher gasoline prices at home.

Still, U.S. Energy Secretary Ernest Moniz caused a stir in December by saying the ban was outdated at a time the United States has become an energy producing power.

LEGISLATIVE EFFORTS

The Ukrainian conflict has breathed new life into bills introduced in the Senate and House of Representatives in early 2013 that would force the DOE to speed up its approvals for exports of liquefied natural gas to Japan and to NATO allies.

The legislation, called the Expedited LNG for American Allies Act, would also allow the State Department to intervene, speeding up approvals if it was determined to be in the national interest.

The Senate version is sponsored by John Barrasso, a Wyoming Republican. It has 13 Republican and two Democratic co-sponsors but would need more support from Democrats who lead the Senate to have a chance of passage.

McMonigle said that if the crisis in the Ukraine deepens, it could give the legislation more support.

In the Republican-led House, Representative Tim Ryan, an Ohio Democrat who supports the legislation, said on Monday that the events in the Ukraine show the need to act.

"This crisis also points to the fact that the United States should help Eastern Europe find alternative sources of natural gas," Ryan said in a release.

NOT ENOUGH JUST TO GET IT THERE

Countries such as Germany and Austria might benefit from diversifying to U.S. LNG shipments as stop-gap measures in times of crisis or supply dislocation.

But others in central and southern Europe, such as Bulgaria, Hungary and Greece, may remain mostly dependent on Russia, an expert said.

"It's not enough to just get the gas there, it's got to be at a price that governments can afford," said Brenda Shaffer, an energy security expert and visiting professor at Georgetown University. She said U.S. LNG, after liquefaction, regasification and shipping, may be too expensive for countries farther from the United States.

Many of those countries could do well to increase their storage capacity of gas to shield against supply disruptions, she said. "I see storage as important, if not more important than diversification," of supply for European countries, Shaffer said.

(Additional reporting by Julia Edwards, Editing by Ros Krasny and Ken Wills)

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