Russia is a resource economy, a Saudi Arabia with lots of imperial baggage. President
The EU has made clear to Putin that the South Stream gas pipeline he is ramming through the Black Sea en route to the EU, bypassing Ukraine, is off the table until the crisis has been resolved. This gesture sends an important message that Europe strongly disapproves of Russia's behavior in Ukraine. However, the underlying reality is that relations between Europe and Russia will be deeply intertwined well into the future. Some recent news coverage suggests that Europe and Ukraine have a future without Russian energy resources. This is a myth.
In the U.S. there have been loud cries to, as a Wall Street Journal editorial put it, "unleash North American oil and gas on the world." Several U.S. politicians have demanded that President
It is "us" against "them," and in this rather naive view, shale gas and oil can be "our" weapons. There are several problems with this line of reasoning. Unlike Russian energy giant Gazprom, U.S. energy companies are not state-owned. Gas and oil companies are profit-seeking enterprises, and they typically are keen to steer clear of geopolitics. So how realistic is this carbon-bullying role that some would like the U.S. to play?
We think not very. First, U.S. exports of LNG are far in the future, and currently uncertain. The legal and regulatory framework has substantial limitations. For the LNG that does get to the market, price will dictate where the product flows. New supplies from other parts of the world also are coming on-stream, and it is not clear that North American natural gas will be competitive on European markets.
In theory, buyers could of course be so interested in natural gas from the U.S. that they would be willing to pay a premium over the normal price. Examples of this approach are very rare. Allegedly Poland is going to pay substantially more for its contracted LNG from Qatar than it has been paying to Gazprom. If this is true, this is an exceptional act. We would not expect Ukraine to make a similar decision, not least because there is no infrastructure in place or planned on the country's Black Sea coast to import LNG.
What recent history in Ukraine has shown us is that further market integration can be very effective. Last year the country was importing an increasing amount of natural gas from Poland and Hungary, and as a result Gazprom offered Ukraine's then-President
This example tells us that longer-term sustainable solutions to the current situation in Ukraine are not found in petro-state politics, as some voices in Washington would have us believe. The underlying politics and history in the region are simply too complicated to hope for an outcome that sees Ukraine snubbing Russia and falling into a Western embrace, all while burning American shale gas. The principles of sovereignty and territorial integrity require putting pressure on Russia through sanctions and diplomacy. Meanwhile, Europe must step up its efforts to further integrate (still) nationally oriented gas markets, in particular those in Central and Eastern Europe, and should include Ukraine in its efforts.