If Russia tightens Ukraine's natural gas tap, will Europeans shiver?

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Marco Werman: Ukraine's ability to weather this crisis will depend a lot on its economy. There's crucial natural gas that fuels its economy and it comes from Russia, so what will happen if the Kremlin turns off the tap or jacks up fuel prices? That weighs heavily as well on minds in Washington. Today US officials have said they're considering using American natural gas resources to ease the crisis in Ukraine. The supply of natural gas is not only critical to Ukraine's future but also Europe's. That's according to Jeffrey Mankoff at the Center for Strategic and International Studies. Jeffrey Mankoff: Most of the pipelines that bring oil and particularly gas from Russia to Europe pass through Ukraine and right now about a quarter of Europe's gas consumption comes from Russia. What that means is that any kind of political instability in Ukraine potentially threatens supplies of Russian gas to European consumers and that's one reason that the EU has been waiting very carefully in the Ukrainian waters since this crisis has broken out. Werman: What exactly has the Kremlin done so far to close the tap? Mankoff: So far they've announced that a discount on price for gas that was negotiated before the Yanukovych government fell is no longer going to be honored, so the gas prices are going to be raised again. That, of course, is one of the reasons that Ukraine has been in such a vulnerable position all of these years because they've accumulated huge debts to Gazprom, the Russian state energy company, in part because they've been unwilling to charge market rates for domestic consumers to be able to recoup their costs. Since they have this huge amount of debt, Gazprom has given the Kremlin an excuse, if necessary, to turn off the tap simply because the Ukrainians haven't paid for the deliveries that they've received. Werman: This is not news, I gather, for Russia. It's got a history of tightening natural gas supplies when conflicts erupt, right? Mankoff: Yes, this has been an issue in relations between Russia and Ukraine for quite some time now. There were major gas crises in both 2006 and 2009 and in 2006, this was shortly after the so-called Orange Revolution which brought a very pro-Western government to power in Kiev and it was perceived at the time as being in part Russian retaliation for the Ukrainian government's efforts to move away from Russia, to move closer to Europe, including potentially to NATO which was then being discussed. Werman: How nervous is Europe with all of this, especially with Ukraine being ahead of them on the natural gas stream? Mankoff: Compared to where Europe was in 2006 or 2009 when these other crises broke out, today the Europeans are in a better position, in part because they've instituted liberalization reforms within the EU itself to make the gas market there more liquid. Also because of changes in the global natural gas market, largely as a result of the shale boom in the United States, which just means that there is more gas available from a wider variety of sources and so there's a greater degree of flexibility that the EU has right now. That said, obviously there are transition costs and there's a timeline between when any sort of contingency plan can be put into place, so the EU is still going to be concerned. Werman: We've also heard that this has been a particularly mild winter so it doesn't look or sound like Ukrainians, even if gas doubles in price, that they would freeze this year. Mankoff: Right and there's also more gas in storage this time around, partially because there's warmer weather so, at least in Europe, the number I've heard is up to about 3 months of gas storage. Werman: We've got the advent of fracking as well. A lot of controversy over that here and in Europe but it's already producing a bonanza for natural gas in some places. Could fracking change the equation in terms of Russia's leverage over Ukraine and the rest of Europe? Mankoff: It's definitely having an effect and I would say the shale gas revolution in the United States means that there's now a lot more gas on the market globally. A couple of years ago when it looked like the United States was going to be a major importer of gas, all of this liquified natural gas that was being produced in places like Qatar was supposed to come to the United States. But what's happened is that over the last couple years as the United States has basically become self sufficient in gas, those LNG cargos from Qatar, Algeria and other places have been freed up to go on international markets and so that provides additional sources to Europe. Werman: It sounds like you're seeing the United States' role in Ukraine right as being both diplomatic but also playing the energy/natural gas angle. Mankoff: Yes and that's something that the administration has emphasized and it's something that it's prioritized. There is some resistance to this in Congress obviously, and even if the politics could be solved simply, the fact of the matter is there's a transition period. There aren't these LNG export terminals operating in the United States right now that would allow for these deliveries to make their way to Europe. That's something that is being looked at and I think over the next couple of years you're going to see more of these come online but they have to be built, they have to be approved, they have to be tested and put into operation and that's going to take some time. Werman: Jeffrey Mankoff, Deputy Director of the Russia and Eurasia program at the Center for Strategic and International Studies, thanks for your time. Mankoff: Thank you.