If President Obama’s tired of being humiliated by Russia’s Vladimir Putin, he has at least one way to get his mojo back: Approve the Keystone XL Pipeline.
Putin has slapped Obama for months, granting asylum to NSA leaker Edward Snowden, backing Syria’s murderous regime and most recently exploiting the administration’s confused response to Syria’s use of chemical weapons to effectively seize control of US policy, at least for now.
Then came yesterday’s insulting op-ed in The New York Times, where Putin essentially called Obama a liar even as he smirkingly claimed their relations are improving.
Obama can turn the tables by doing everything possible to boost global oil and gas production — starving Moscow of money and power. Russia, you see, is utterly dependent on oil and gas revenues, which make up 70 percent of its exports and 17 percent of its economy.
Approving the Keystone XL Pipeline would mean helping to tap the world’s third-largest oil reserves — the Athabasca oil sands in Alberta, Canada. To date, Obama has stalled Keystone to appease environmentalists — even at the expense of angering labor-union allies, who want the jobs and economic growth Keystone represents.
But a need to neuter Russia ought to tip the balance — and the president, by OKing Keystone, would sent a stark signal that the recent surge in US oil and gas production is not a one-off, but only the start of an enduring increase in North American energy output.
US oil and gas production is climbing largely due to the technological breakthrough known as fracking. In July, oil production averaged 7.5 million barrels per day, the highest since 1991. By next month, the IEA says US energy output could top imports for the first time since 1995. By 2020, the United States is expected to eclipse Russia and Saudi Arabia as the world’s No. l oil producer.
Combined with conservation measures and production increases elsewhere, this US energy boom has kept a lid on global oil prices, weakening Russia’s fragile economy. The latest figures show that Russia’s economy actually shrank in the past two quarters. Economists predict some improvement in the second half, but growth for the year overall will likely be less than 2 percent.
That’s a big drop from the 7 percent-plus growth Moscow notched for most of the past decade, and not enough to satisfy the demands of a struggling country and a controversial leader.
In his most recent campaign, Putin promised to hike doctor and teacher pay, improve pensions and build up the military. But he needs money to make good on his pledges — and about half of Russia’s government spending is financed by oil and gas revenues.
Lower global energy prices are already widening this year’s Russian budget deficit; to reach balance, Moscow needs oil prices several dollars higher than they are today. And its debt ratings are already in the basement.
Oil and gas production is also vital to Russia’s power. Europe gets 34 percent of its natural gas from Russia; Eastern Europe is even more dependent. Moscow has twice intentially caused widespread shortages of natural gas in Europe by cutting off exports via Ukraine in the midst of winter.
That stranglehold on Europe’s vital heating fuel will be increasingly undermined by US natural-gas exports. Obama recently approved three new gas-processing and -liquification facilities, which will pump 2 trillion cubic feet a year of new supply into global markets. And more gas production will flow from South Korea, Australia and other producers, further weakening Russia’s clout.
Russia’s known oil reserves will last about 20 more years at current production rates; in the next decade the country’s leaders will have to invest massively in other sources of revenue. But they need high oil prices to finance that diversification.
The United States should do everything possible to make sure the Russians don’t get the prices they need. The simplest way to do that is to encourage the development of all energy sources — a policy that will also fuel our own prosperity.
Obama can put Putin in his place by playing the energy card to the max. And there’s no better way to broadcast that gambit than by approving the Keystone XL.
Liz Peek is a columnist for TheFiscalTimes.com and a former energy analyst with Wertheim Schroder.