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John Boehner’s misleading argument on natural gas and Ukraine

Critics of the Obama administration have recently suggested countering Russia’s economic influence in Europe with American natural gas. That gas would presumably get to Europe via the White House’s secret magical natural-gas teleportation machine, which can transport billions of cubic feet per day across the Atlantic using nothing but fairy dust and smiles.

Obviously, there is no such natural-gas teleporter, but its existence has to be posited to make sense of the claims by House Speaker John Boehner (R-Oh.) and others who argue that Obama hasn’t done enough in response to Russia’s invasion of Ukraine. Reporters for publications that are far, far more respectable than Know More have taken this argument seriously, such as Coral Davenport and Steven Erlanger in The New York Times and John Bussey in The Wall Street Journal. It’s a dubious line of reasoning, though, and it’s incompatible with a belief in free markets and free enterprise.

The Times quotes Boehner: “One immediate step the president can and should take is to dramatically expedite the approval of U.S. exports of natural gas. … The U.S. Department of Energy’s excruciatingly slow approval process amounts to a de facto ban on American natural gas exports that Vladimir Putin has happily exploited to finance his geopolitical goals.”

Yet Energy has approved construction of five export projects since last year, including one in Cameron Parish, La. a month ago, which should provide close to enough capacity to meet international demand — and no matter how quickly the administration approves new projects, they will take several years to build. Preparing natural gas to be loaded onto a ship requires heavy infrastructure. Until fracking recently allowed domestic companies produce enough gas to export some of it, there’s been no need for that infrastructure. The only existing export terminal, at Kenai in Alaska, has been closed since 2011.

What’s more, even if the Obama administration could wish away engineering realities and conjure newly built natural gas facilities out of nothing, it isn’t clear that doing so would affect European prices. Any U.S. system for exporting natural gas would have to compete with the old Soviet network of pipelines, shown in the map above by the Pennsylvania consulting firm East European Gas Analysis. These pipelines can deliver gas cheaply and quickly to the European market, and while U.S. companies build new terminals, Russia’s Gazprom is also planning to expand its capacity with new pipelines. As Michael Levi of the Council on Foreign Relations explains, U.S. firms will probably ship most of their gas to Asia, where prices are higher than in Europe.

Suppose the United States subsidized natural gas exports to Europe to encourage countries there to cooperate in a scheme of sanctions against Russia the next time it invades one of its neighbors. Suppose the United States also funded the construction of pipes and tanks to accommodate the flow of gas in a crisis, (infrastructure that would sit idle most of the time). Doing so would just shift the expense of sanctions from Europe to the U.S. federal government, rather than reducing Moscow’s economic leverage. In natural gas as in so many other things in life, there is rarely any free lunch.

Subsidies are just a silly thought experiment to illustrate the economic fallacy of the position Boehner expressed. They’d violate free-trade agreements, and Russia would probably retaliate with discounts of its own. Using American natural gas to counter Russian influence in Europe would basically require a national industrial policy, in which the state helps certain industries succeed based on geopolitical or other considerations. You’d have to oppose such a policy if you believe that a country is usually stronger, both domestically and its relations with other states, when it protects freedom of enterprise.

Click below for Levi’s analysis of the European gas market.

Max Ehrenfreund | March 6 at 1:58 pm
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