Natural gas is an important card in the Russian hand. But that economic lever is losing some of its power, and Louisiana stands to benefit.
Russia is a primary provider of fuel to Ukraine and the rest of Europe and is willing to use its pipelines as a cudgel. More than 30 percent of Europe’s natural gas comes from Russia, and half of that passes through Ukrainian pipes.
In 2006 and 2009, Russia disrupted flow to Ukraine over late payments. These shut-offs caused serious distress for European customers and sent them searching for other distributors.
While Western nations are keeping military options in the Ukraine off the table for now, U.S. leaders have threatened economic consequences to Russian belligerence. Sanctions and boycotts could put the hurt on Russia’s state-controlled natural gas industry, and that would leave Europeans looking for new sources of natural gas again.
“If the world supply of gas was reduced because the European Union stopped taking Russian gas, then we’ll see the price go up with demand and producing will be profitable again,” said Centenary College Professor of Economics David Hoaas. “The people who study political unrest will make a prediction on the length of the conflict, and that will determine what the long-term efforts here are.”
Oil and gas firms won’t invest the $10 million to build a natural gas well on the Haynesville Shale unless gas prices are again between $5 mmBTU and $5.50 mmBTU, Louisiana Oil and Gas Association spokesman Ragan Dicken said. Gas prices on Tuesday hovered around $4.63 mmBTU.
“We’ll see a price fluctuation as always happens with geopolitical unrest,” Dickens said. “But output in the U.S. won’t change quickly. It would have to be long-term unrest to really make a difference.”
European nations are hesitant to break economic relationships as important their power supply, according to Center for Strategic and International Studies Senior Fellow Ed Chow.
“I don’t know that there will be direct actions against Russian oil and gas,” Chow said. “Europe has no appetite for this.”
But Europeans are tired of Russia’s hard line, and they’re shopping around to diversify their suppliers.
Only the United States produces more natural gas than Russia, and the Haynesville Shale has become one of the top plays despite declining activity associated with reduced gas prices. Cheniere Energy is building a massive liquified natural gas export facility — the first of its kind — in Cameron Parish.
But that facility won’t be online until late next year, and without liquifying natural gas it’s nearly impossible to get the product from the United States to new European consumers. They’ll likely look elsewhere — perhaps Australia, Qatar or Norway — until the United States can ship its LNG by freighter.
“I travel around the world and everyone is anxiously waiting for us to start exporting LNG,” Chow said. “We will change the global gas game when we start exporting.”
Louisiana will be home to more exportation facilities in the near future, and Chow said that puts domestic producers in a good place in the long-term. Little will change for them immediately, but the world won’t forget the crisis in Crimea.
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