The Geopolitics of Gas Exports
Why lawmakers from both parties, and plenty of countries overseas, are desperate to speed up U.S. energy exports
The Energy Department approved the construction of a new multi-billion terminal for exporting U.S. natural gas overseas, only the sixth green light the Obama administration has given during 18 months of bitter political jousting over how to best take advantage of the United States’ sudden energy abundance.
Proponents of greater energy exports in Congress, as well as the growing number of countries that want to buy U.S. natural gas, are pushing the White House to sign off on projects more quickly. The Obama administration is still mulling whether to clear the way for the construction of another 25 export facilities. If approved, the new facilities could have the capacity to liquefy and export nearly 35 billion cubic feet a day of natural gas.
There’s a catch, though. U.S. law makes it extremely difficult for American companies to export natural gas to countries that don’t have free trade agreements with Washington. Companies that want to sell to those countries need to persuade the Energy Department that the deals would be in the U.S. national interest, a criteria without a formal definition. That makes the approval process a lengthy and byzantine process that is deeply frustrating for would-be purchasers of U.S. gas. At the same time, big gas producers such as Qatar and Australia are ramping up their own gas-export capabilities, threatening to close the window of opportunity for U.S. exporters.
"I always am glad to see the Department of Energy approve another permit to export [liquefied natural gas) abroad] but there is a bipartisan chorus here in the Senate that believes DOE must move faster," Sen. James Inhofe (R.-Okla.) told Foreign Policy. "Our friends and allies abroad are struggling to meet their energy needs, and they face enormous pressure to purchase from Russia and Iran. It is vital we offer our allies other options for energy."
Lawmakers in both the House and the Senate, including Sen. Inhofe, have introduced legislation that would fast-track approval of U.S. gas exports for friends and allies, such as North Atlantic Treaty Organization countries in Europe and Japan in Asia.
Increasingly, export proponents are pointing to the potential geopolitical benefits of exporting U.S. energy to make their case and win political support on the Hill. A recent report prepared by the House Energy and Commerce Committee found, for example, that American gas could bolster friendly nations while helping to undermine energy powerhouses like Russia that frequently act against U.S. interests.
"An increased American contribution to global energy markets can enhance national security by supplanting the influence of the troublesome participants currently dominating those markets, especially Iran and Russia," the report argued.
Rep. Michael Turner (R.-OH), the author of House legislation that would fast-track export approvals to friendly governments, told FP boosting allies economically and in terms of their own energy security was a "win-win" for the United States.
In addition to the latest government approval, export proponents have another cause for cheer: Sen. Mary Landrieu (D.-La.) will take over the Senate energy panel this week, part of a congressional game of musical chairs set in motion by former Montana Democrat Max Baucus’ recent confirmation as the next U.S. ambassador to China. Landrieu is an unabashed proponent of greater U.S. energy exports, in contrast to the outgoing chairman of the energy panel, Sen. Ron Wyden (D.-OR.). Still, it’s unclear whether the change in Senate energy leadership will shake up the administration’s cautious approach to approving export plans.
Many U.S. allies are beginning to run out of patience. Europeans and Asians alike are clamoring for greater access to U.S. gas, which even with the cost of liquefaction and transport would still be cheaper than what’s currently sold in their countries. Unlike the market for crude oil, there is no global market for natural gas, which leads to stark price differences from one region to another. Asian natural gas prices have recently been about four times the U.S. price, while European prices average about three times as much.
Proponents of greater U.S. exports also point to the way Russia has been able to exert increased control over the Ukraine, a nominal U.S. ally whose natural gas supply is firmly dependent on the Kremlin’s good graces. To many Europeans, the Ukraine has been a cautionary tale about the dangers of relying too much on Russian gas to meet their energy needs, making an American alternative increasingly attractive. Parades of European and Asian diplomats have landed on the Hill to argue for an overhaul in U.S. export policy.
"It’s an interesting situation, we are in the same defense alignment (NATO), but we are unable to trade the energy resources which are so important for us, not only for the economy but in terms of national security as well," said Simonas Satunas, the deputy chief of mission at the Lithuanian Embassy in Washington.
Lithuania is 100 percent dependent on a single Russian pipeline for its natural-gas imports, and is building a new LNG terminal to be able to diversify its energy sources and start importing LNG by early 2015. Lithuania would like to count the United States as one of its potential suppliers.
Japan, another close U.S. ally, has also increased its reliance on expensive, imported natural gas since the March 2011 nuclear accident at Fukushima, which led to the shuttering of all of Japan’s nuclear reactors. Japan’s trade deficit is soaring, and government officials are concerned about how energy costs are undermining economic competitiveness.
Luckily for Japan, exports from four of the six LNG terminals approved so far, including the Louisiana project greenlighted Tuesday, are at least partly earmarked for the Japanese market. That means that the United States is on track to become one of the biggest suppliers of natural gas to Japan starting after 2017, Japanese officials told FP.
But other big Asian gas consumers, especially India, are still urging the U.S. to make natural gas more readily available. India, like China, is trying to find a way to meet rising demand for energy without relying entirely on coal, which has terrible environmental consequences.
The increasing focus on the geopolitical benefits of U.S. energy exports shifts the terms of the debate, which initially centered on domestic economic impacts. Opponents of unfettered gas exports, including big industrial consumers of gas like Dow Chemical, argue that exports could push up domestic prices, thus knocking out one of the pillars of the recent U.S. manufacturing renaissance. But studies that the Energy Department. commissioned concluded that natural-gas exports would have little impact on domestic gas supplies or prices.
Export proponents see the emphasis on the geopolitical benefits as a way to garner more support among lawmakers who might otherwise be leery of the domestic impacts of shipping cheap U.S. energy overseas.
"I think the bill is building momentum," Turner said. "In one form or another, it’s an inevitability."