Ending the Crimea and Ukraine Crisis

Curtailing the exports of Russian oil and gas would send their economy into a tailspin, crater the value of their currency and their stock market and create massive hardship for politicians and citizens alike.  I propose a strategy to “checkmate” Putin and his band of thugs forcing them to retreat from Crimea and eliminate the threat of Russian expansionism.

Russia is the world’s largest producer of oil and the second-largest producer of natural gas.  Oil and gas revenues account for more than 50% or their federal budget revenues.  Russia exports about 5 million barrels per day of oil most of which serves the European market.  Collectively, the EU, Turkey, Norway, Switzerland and the Balkan countries get 30 percent of the natural gas from Russia.

The U.S. and European Union must immediately impose banking sanctions, freeze assets and curtail trade with Russia. The U.S. must assure Europe that we will backfill any shortfall in natural gas with our exports of LNG (liquefied natural gas) from a network of LNG terminals already in place in the U.S.  Any natural gas shortfall in the U.S. can be backfilled by our vibrant system of coal plants.  We must also mitigate the impact of a crude oil shortfall by exporting oil from domestic “frontier” areas which are just now beginning to ramp up production.  In addition, we must encourage Saudi Arabia and other friendly Arab nations to increase production to fill the gap. 

Unfortunately, the scenario described above is pure fantasy because of Obama’s war on carbon.  LNG export terminal permits have been slow-walked, Frontier areas of exploration have been deemed “off limits”, the Keystone XL pipeline has been delayed and the coal industry has been decimated by EPA action.

To counter rapidly declining natural gas production in America, several natural gas import facilities were built and subsequently rendered obsolete with the coming of the “shale gas” revolution.  Today, the U.S. is the largest natural gas producer in the world.  Much of the equipment (tanks, piping etc.) at the “obsolete” import facilities can be used in an export facility.  All that is needed is liquefaction equipment.  Unfortunately, the permitting process takes more than two years and involves FERC, DOE and multiple layers of regulations.  The Administration could and should have streamlined the process recognizing that permits had already been issued for many of these as import facilities.  By now, at least three of these formerly permitted import facilities would have become operational as major export facilities with others coming on stream during the next year or two. 

Coal will not be used to backfill any shortfall in domestic natural gas as power plant fuel.  A promise that President Obama has kept is that “If someone wants to build a new coal-fired power plant they can, but it will bankrupt them…”   The President’s EPA has implemented so called M.A.C.T rules for existing coal fired power plants that have already shut down over 10% of the nation’s coal-fired capacity and may impact up to 30% of the coal fleet.  Then in September of 2013, the EPA announced a proposed rule for carbon emissions caps on all new coal fired power plants which, if enacted will effectively halt new construction.

Forget new production from “frontier” areas.  Shortly after the President was inaugurated, his Department of Interior shelved the existing plan that would have leased promising and heretofore unexplored offshore (OCS) areas in Alaska, California and the East Coast.   These “frontier” areas may contain billions of barrels of oil and gas but we will never know.  In addition, and in the wake of the BP oil spill, the Administration stopped issuing permits for deep water drilling in the Gulf of Mexico.   Shallow water drilling was also slowed dramatically by regulator’s demands for drilling plan modifications.  It took nearly a year and of legal wrangling before a single deep water permit was approved. 

The Keystone XL pipeline, when completed could move 700,000+ barrels per day of Canadian crude oil to Gulf Coast refineries adding to the world’s crude supply and backing out U.S. imports of foreign crude to refineries in the Gulf Coast.  In addition, the pipeline will stimulate incremental domestic exploration and production which could be transported by new “feeder” lines to Keystone.  The initial application for Keystone was submitted in 2008.  Finally, in 2011 both the State Department and the DOE concluded that pipeline “would not appreciably increase” global life-cycle greenhouse gas emissions”.  Even so, the President stopped the project from moving forward even after the pipeline route was changed to avoid traversing an important aquifer.

In conclusion, I believe that “war” is and will continue to be waged using economic power and leverage.  The first battle with Russia has been lost.  If we continue to pursue the present path of over-regulation, high taxes and government intervention into free markets we will lose these battles.  If we do not get our spending under control, countries like China will exert ever increasing leverage impacting world events.   Think hard about these issues at the ballot box.