White House Chronicle

News Analysis With a Sense of Humor

Step on the Gas, Europeans Plead

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To hear Brenda Shaffer, a peripatetic academic specializing in European and Eurasian energy issues, currently on a research fellowship at Georgetown University, natural gas is the predominant fuel of the 21st century, and it will be used copiously as time goes on. It will become the fuel of transportation as well as heating, manufacturing and electric generation.

But, at this point in time, moving natural gas from supplier to user presents special problems. It is not as easily transported as oil, and it is not as fungible.

Ideally, natural gas is transported by pipeline. Less desirably, it is converted into a liquid at -260 F and shipped around the world, where it has to be regassified. The freezing and the regassification processes for liquefied natural gas (LNG) require hugely expensive plants: over $5 billion at the originating end, and half that at the receiving end. This makes the gas expensive and its shipment inflexible.

Oil is put on tankers and unloaded wherever it is needed. LNG is shipped in special cryogenic tankers to dedicated terminals on long-term, take-or-pay contracts.

The United States is in the middle of a natural gas boom of unprecedented proportions; the result of extraordinary reserves in shale and the development of sophisticated hydraulic fracturing (fracking) technology linked to horizontal drilling. The pressure to export is on, balanced by environmental concerns and the fear of manufacturers tat the price will rise.

In the current crisis over Ukraine, a question has arisen as to whether we can help our European allies by shipping them LNG. The answer is “yes and no.”

We do not have any terminals ready to begin exports; the first LNG exports will be loaded from the Sabine Pass terminal in Louisiana late next year and will be shipped to Asia. Nor does Europe have enough receiving terminals.

But the Europeans argue strongly that the mere presence of the United States as a player in the natural gas export business will have a huge impact on the world market, signaling that we are on the way and, hopefully, warning Russia that its captive gas customers in eastern and central Europe are looking at alternatives, and want to lift the yoke of dependence on Russia.

With the invasion of parts of Ukraine by Russian troops or their surrogates, gas has become a weapon of war. Russia's giant, state-owned gas monopoly, Gazprom, has been an arbitrary supplier to Europe for years. Most troublesome is that the bulk of Europe's gas supplies transit Ukraine, and that Gazprom has never behaved like anything but an arm of the Kremlin, dangerous and capricious.

In 2009, Gazprom cut off supplies over alleged contract and payment issues; in the cold of winter, the Russian bear was merciless. Also, it posts a different gas price for each customer, regardless the distance from Russia's border or cost of delivery.

Desperately, Europe is looking for a defense against Russia freezing supply to Ukraine this winter and cutting off some countries, particularly those wholly dependent on Russian gas, like the Baltic states and Slovakia.

That is why the Visegrad Group, consisting of Poland, the Czech Republic and Slovakia, under the chairmanship of Hungary, has been intensively lobbying Congress to pass a bill that would simplify and speed up the licensing of export terminals in the United States. At present, seven terminals have provisional licenses from the Department of Energy, and Sabine Pass is fully licensed.

Visegrad members swarmed Capitol Hill this week, lobbying for the legislation. They were accompanied by officials from Bulgaria, Croatia, Latvia, Romania and Ukraine.

Their message was simple: the legislation would convince the Russians that they had to play by market rules because the entry of the United States as a player in the world of LNG — even if the gas cannot be offloaded in Europe in the near future — will send a strong market-stabilizing message.

Where possible, eastern and central European countries are improving their interconnections and adjusting their systems so they can reverse the flow of gas to help Ukraine in a dire emergency. But no one believes that it will make enough of a difference; besides, as most of that gas will have originated in Russia, some Russian contracts specify the use of the gas.

Almost all of the gas in the region is used for heating rather than electric generation or manufacturing. Central and eastern Europe is dreading winter and imploring the United States to send strong signals, even if it will be a long time before Pennsylvania or Ohio gas warms the people of Ukraine and its neighbors. — For the Hearst-New York Times Syndicate

 

The Fuel Revolution that Is Changing the World — And Us

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Colorless, odorless natural gas is changing the world geopolitically and economically in ways undreamed of even five years ago.

It is a giant upheaval of which President Obama is both the beneficiary and the victim. He benefits because low natural gas prices are helping consumers and industry. And he is undermined by them because the cheap gas is savaging his dreams of “green” energy alternatives with scads of jobs attached.

The technologies which have brought on the gas boom also are contributing to enhanced oil production in the United States. Who would have believed that North Dakota would become the third-largest oil-producing state?

But the price of gas, now at historical lows, is also a political difficulty for Obama. His energy policy has been based on the old reality of shortage and a need for “alternatives.”  In the administration’s scheme of things, the slack was to be taken up by the renewable sources ofenergy, wind, solar and wave power. With natural gas in plentiful supply and pushing out coal and new nuclear, the president is saddled with his failed attempts to push alternatives and to create a plethora of “green” jobs.

Yet without the boost that oil and natural gas are giving to the economy, it would be in worse shape than it already is.

A similar natural resources boom in the North Sea greatly aided Margaret Thatcher’s government and has underwritten Britain’s economy to this day, when production and British prosperity are both in decline.

New technology has brought the gas boom to the world and with it a change in geopolitics, soothing some tensions and exacerbating others.

The biggest excitement is in the Eastern Mediterranean, where there have been huge discoveries of gas — and sometimes oil and gas — off the coasts of Egypt, Israel, Lebanon, and around the Island of Cyprus.

The problems reflect the old tensions of the regions and some new ones, such as the growing estrangement between Israel and Turkey and the projection of Russian interests in the region.

Cyprus, itself a divided island since the Turkish invasion of 1974, is the closest member of the European Union to chaotic Syria and is being courted on several fronts by Russia.

Russia is worried about new gas supplies affecting its monopoly in gas supply in Europe, as well as the future of its naval base in Syria. As a result, Russia is pouring money and people (150,000) into Cyprus to keep its options in the Mediterranean open.

Cyprus would like to become a transshipment point for Israeli gas (when a gas liquefaction plant is built). But claim to reserves in its own territorial waters are being contested by Turkey and the Turkish Cypriots. About 63 percent of the island is controlled by 900,000 Greek Cypriots who claim to speak for the whole island.

With new gas everywhere, there will be a rush to find markets. Europe, for example, is hoping to ease its Russian gas dependence by building pipelines that will bring gas from Central Asia through Turkey  avoiding Russia. Others, like Qatar, are looking away from Europe and to Asia for new customers.

The appeal of gas to electric utilities everywhere is undeniable. It burns with about half the greenhouse effluent than oil and coal. The power plants are easily sited, do not need huge cooling structures and the capital cost is low.

However, methane, which makes up 75 percent of natural gas, is a serious greenhouse contributor and needs to be kept out of the environment. The other components of natural gas are ethane, 15 percent, and butane and propane come in at about 5 percent each. Natural gas is the world’s most abundant compound.

While the case against the swing to gas is primarily environmental, there is an economic concern about costs in the decades to come. The environmental case is twofold:

• One, that although it produces less CO2, a principal greenhouse gas, than coal or oil, it still produces half as much as they do.

• Two, that hydraulic fracturing, known as “fracking” affects groundwater, uses too much water itself in the process and may stimulate earthquakes.

Yet the chances of the world or the United States turning away from this new bounty are nil.

If the 19th century belonged to coal and the 20the century to oil, it looks as though the 21st will be the natural gas century. Reports of the death of fossil fuels are wildly exaggerated. — For the Hearst-New York Times Syndicate

How Russia Coerces Europe

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No building in Moscow so much says “Soviet Union” as the headquarters of Gazprom, the Russian gas monopoly. It is more foreboding than the Lubyanka, the former headquarters and torture emporium of the KGB. The romantic charm of the czarist era, epitomized by the Kremlin itself, is wholly absent. Like the state monopoly itself, the structure is gigantic, threatening and very hard to get into.

It is set back from the road, and there are layers of security a visitor has to negotiate to see an official. It is easier to get into the Kremlin, No. 10 Downing Street or the White House than it is to get into Gazprom HQ. I know because I have gotten into all of them. No wonder old KGB hand Vladimir Putin loves the gas company.

As president, and now as prime minister, Putin grew Gazprom and its oil counterpart, Rosneft, not to be normal companies but agents of political implementation. Between them, they were tasked to gobble up the pieces of Yukos when its luckless founder, Mikhail Khodorkovsky, was thrown in jail.

But even more than Rosneft, it is Gazprom that has emerged as the right hand of Russian policy in Europe.

At the moment, in the dead of winter, it is Gazprom that has cut off supplies of gas to more than 12 European countries. Ostensibly, the argument is over the price paid for gas by Ukraine, the transshipper of gas to all of Europe. But the Russian political agenda is not concealed. Putin, and the siloviki (the men of power around Putin and President Dimitry Medvedev) are angered by the defiance of former members of the Soviet Union, especially Ukraine. Despite its large Russian-speaking minority (about 40 percent) it has talked of joining NATO and the European Union–a red rag to Russia. Russia is angry at the West, in general, for trying to route new pipelines from Central Asia through Georgia, avoiding Russia. It is also mad at the West for recognizing Kosovo, and has responded by buying the Serbian gas fields.

Russian gas, which now makes up 30 percent of Europe’s need, does not look such a good idea–particularly to Germany, where pressure from the Green party led to the retreat from nuclear and the push for gas turbines. Before Germany turned its back on nuclear, it was a leader in the development of promising pebble bed technology. Now, sadly, Germany depends on Russia for nearly 40 percent of its gas supplies.

The gas crisis is worst in countries like Bulgaria, where there is very little gas storage and demand is in real time. But it is also affecting Italy and Southern Europe. Having closed their coal-fired power plants and shelved their nuclear plans, those countries now feel the full pain of the Russian bear’s embrace: gas droughts and electric shortages are leaving their populations cold and hungry in the dark.

So dependent has Europe become on Russian energy that every step to ameliorate the situation is a possible irritant to Moscow. If the pipelines bypass Russia, or the hub in Ukraine, that is a provocation. If new gas comes by ship from North Africa, that is an excuse for Russia to try and price its pipeline gas at the higher price of liquefied natural gas.

Belatedly, Britain and Finland commissioned new nuclear power plants. But Germany, whose former chancellor Gerhard Schroeder took a lucrative job with Gazprom, has chosen to increase its energy dependence on Russia.

Most observers believe that the current crisis will not last. Most likely, it will conclude with a jump in the price of gas, and some satisfaction in the Kremlin that Europe has been taught a lesson. But that lesson may have to be repeated over issues far from energy–such as the expansion of NATO and the European Union.

While the Russians appear to take some satisfaction in upsetting Western Europe, it is their Soviet-era satellites that most annoy them. Why, they wonder, can’t all of Eastern Europe remain suitably deferential, like Belarus and Armenia? Both toady to Moscow.

For the rest of Europe, the message is clear: build more gas storage, arrange more imports and diversify away from gas turbines.

For our part, we can help our friends and allies by thinking through our own actions, from the European missile shield to the willy-nilly expansion of NATO. This is a European problem. But if Europe has to make geopolitical compromises with Russia, it becomes problem for the Western alliance. That is us.

Russia: The Bad Neighbor

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Georgia on my mind.

I was struck when I arrived in Tbilisi a few years ago, in the early hours of the morning, that the lights were blazing in dozens of stands that dotted the road from the airport to the city. This gave the impression that Georgia was booming; that the economy was vibrant and the people were entrepreneurial.

The next day, I learned that nothing in the small and ancient country of Georgia is quite the way it seems. A year after my visit a colleague from The Washington Times, Joseph Curl, also mistook the appearance of prosperity for the real thing.

The fact is that lights blaze night and day in Tbilisi because the good business people steal their electricity. Every one of the road stands is located next to a power line, and there is no attempt to hide the illegal connections. No wonder the lights stay on all night—no switches.

Georgia, like its bullying neighbor Russia, has fostered a strange indifference to law. It goes like this: laws are for the people who make laws, not for the rest of us. We just have to do the best we can.

In few countries have I felt more isolated by language than in Georgia. In most countries, at street level—restaurants and taxis–someone speaks English. Not so in Tbilisi. The first language, of course, is Georgian and the second is Russian. Happily, I was traveling with another journalist who spoke excellent Russian. Otherwise, like so many, I would have been confined to the international hotel where English was spoken.

Our first order of business was to get press passes at the information ministry. We were registered, photographed, paid a fee and were issued with press passes by an engaging young woman. My colleague, Nathan Hodge, elicited that our friendly registrar was going to a rock concert that evening and the tickets would cost about $150. We calculated that this would be many times her weekly salary and were perplexed. Georgians are poor, and government workers are not well paid. A role in the black economy? A rich lover?

Much in Georgia is unexplained. Since the Russian tanks rolled into South Ossetia, one those unexplained issues is how the government of Mikheil Saakashvili thought it could taunt Russia when it knew that Russia historically has been paranoid about its borders; and that its paranoia had been exacerbated by the West’s quick recognition of Kosovo and the loss of face by Serbia, a Russian Slavic ally.

Russia was poised to invade and the Georgian president lit the fuse when he sent Georgian troops to reclaim South Ossetia. Justice may have been on Saakashvili’s side, but realpolitik was not.

As long as Russia feels surrounded by American surrogates in the colors of NATO, it is going to bully where it can and use its energy superiority to try and separate Europe from the United States. Europe is 50-percent dependent on gas from Russia. Watch for European indignation to subside as winter approaches.

There is a precedent for Russia annexing chunks of its neighbors and getting away with it. Remember what happened to Finland during World War II. With the spread of mechanized warfare, Russia felt its crown jewel of a city, St. Petersburg, lying a few kilometers from the Finnish border, was vulnerable. So they began a land grab for about one-tenth of Finland, known as Karelia. This was to be a buffer zone.

After the bitterly fought Winter War of 1940, in a lopsided peace, Russia grabbed Karelia, including the second-largest Finnish city and most of its industrial infrastructure. Twelve percent of the Finnish population had to be resettled. It was a great blow to the Finns, and is remembered painfully today.

Neither candidate for the American presidency has any idea what to do about Russia. It is not an economic colossus. If it were not for energy, it would be sick indeed. It is not a competitive manufacturer in anything except vodka and nuclear power plants. It has not been able to divert its oil wealth for the betterment of its rural towns and villages, and its population of 142 million is declining rapidly.

But Russia is armed to the teeth with nuclear weapons and is our partner in some things that work well, like weapons decommissioning and the International Space Station. John McCain has proposed throwing the Russians out of the G-8. To what end? It has no real role in that group. Barack Obama would talk to them more. No one has courted the Russians more assiduously than George W. Bush or been as thoroughly rebuffed.

The Russian enigma will be with us a long time. As for the enigma of the Tbilisi rock concert ticket-holder, I think she was making money selling press passes to gullible American journalists who did not need them.

Whither Cuba after the Brothers Castro?

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In Havana, the enfeebled fingers of Fidel Castro have handed the baton of dictatorship to the feeble fingers of his brother, Raul. The endgame is in sight, but what will it lead to?

There are those in Miami and Washington who believe that, by some miracle, the status quo ante will return to Cuba, but this time with democracy and transparency.

To understand what might happen in Cuba, let us look at two examples of countries where power was transferred.

First, take South Africa. The white minority government ceded power to the African National Congress by throwing open the franchise, enabling a black government to be elected. Significantly in South Africa, there were independent institutions, a democratic tradition among whites, and organized political groups.

Second, look at Russia. Change came quickly, but Russia was not ready for democratic emancipation in tandem with economic liberalization. While South Africa transferred power smoothly, it did not have to transfer ownership of its commerce. Result: an orderly transition. In Russia, the political transition was smoother than the commercial one. Smart kleptocrats stole Russia’s wealth. This has generated great public resentment; and from it, Vladimir Putin was able to abridge democracy. Of course, Putin was helped by the economic chaos of the early 1990s–another symptom of Russia’s democratic and commercial immaturity.

There are those who think that there will be a transition in Cuba akin to the one in South Africa. The parallel is faulty. They would be better advised to look at what happened in Russia and chart a future for Cuba that avoids the mistakes of Russia.

The great truth about Cuba, as far as the United States is concerned, is that it lies 90 miles off Florida; its economy is a disaster; and it has 11 million people—a goodly number of whom would like to move to the United States.

Here are some scenarios for Cuba:

1. The United States lifts the embargo. In the first week, Cuba is flooded with private aircraft and boats. There is chaos, and the Cubans fear that they are being taken over. Solution: a gradual lifting of the embargo over time.

2. A democratic government is established in Havana. But without political parties, Cuba divides along racial lines. Roughly 50 percent of Cubans are white and the rest are black. Solution: a government in exile is formed in Miami to prepare a constitution that could be adopted in Cuba, allowing for the special conditions on the island.

3. A new Cuban government seeks to privatize state-owned enterprises– the most valuable of which is the pharmaceutical research industry. Any move to privatize industry would put a new government at odds with the Cuban exile community in the United States. Many harbor claims against Cuba for companies and private property that were seized by Castro 48 years ago. These claims are extremely complicated and could bog down a new administration in litigation in Cuban and American courts. Solution: a commission of reconciliation, whose findings would be legislated into law in Havana with treaty recognition in the United States.

If things go wrong in Cuba, they go wrong for the United States as well. A rush to democracy could be as damaging as anything that has happened, including civil war. There are those in Havana who believe that there should be a period for private industry to be established before democracy is implemented. These are people who look not to the South African or Russian examples but to China.

And, of course, there are the Cubans. When I first went to Cuba in the 1980s, at least half of them remembered the days before the revolution and were sullenly angry about what had happened to Cuba. On my last visit, four years ago, the change in generations was apparent. There was less memory of the old days, and Cubans’ aspirations had more to do with their daily lives than with great upheavals. As I could define it, a wish-list included better pay, more meat in the diet, and better-fitting clothes. A distant fourth on the wish-list, and from the young, was to travel. But years of propaganda have taken their toll, and many young Cubans believe that life outside of Cuba is brutal and dangerous. Interviews on the street suggest that they fear the inequalities of the past as much as they resent the oppression of the present.

The Cuban question will not be resolved when two old men leave the scene there.