Time for Natural Gas Diplomacy
The United States is undergoing one of the quietest economic revolutions in history. Unthinkable only a few years ago, the shale gas revolution has drastically reduced domestic natural gas prices, making it possible for the U.S. to shutter heavily polluting coal plants, reduce the overall carbon intensiveness of our economy, and spur domestic manufacturing and petrochemicals industries. While the domestic benefits—and possible environmental costs—of this revolution have been the subject of vigorous public debate, relatively little attention has been paid to the immense geopolitical and economic potential for the United States if it were to ease its stringent rules that effectively prevent liquefied natural gas (LNG) exports to countries without free trade agreements with the United States.
While the U.S. is enjoying a supply glut and record low prices for natural gas, both Europe and Asia are continuing to see high prices due to supply-side constraints. In Asia, prices are about three times those here. High growth rates in Asia, environmental and safety concerns about coal and nuclear power, and fears regarding supply disruptions in Europe all point to strong long-term demand for natural-gas exports to Europe and Asia.
In Europe, meanwhile, natural-gas production has declined, making it more dependent on imports. It is no secret that much of Europe relies heavily on Russia for its gas supplies, a source of continued concern as European officials fear Gazprom’s virtual monopoly power and a possible cutoff of supply. Russia has long used energy supplies as a source of political leverage with its neighbors, who have few (if any) alternatives for supply. In order to maintain its commanding position in the European gas market, Russia has built the North Stream pipeline network to Germany and is hoping to receive approval for South Stream to Southern Europe. While these pipeline projects are designed to reduce dependency on transit states and increase Russia’s leverage, most Russian natural-gas exports to Europe must still pass through Belarus and Ukraine, and as relations between Russia and those countries continue to be fraught with tension, so has the certainty of natural-gas flows to Europe.
Although some European countries hope to exploit shale resources as an alternative source of gas, it is unclear whether deposits there are geologically similar to those in the United States, or even that they are commercially viable. Furthermore, most countries lack the latest technology to match the U.S. shale success, and they are doing little to make it easy for American companies to operate there. The biggest challenge to shale development in Europe may be the regulatory environment. Several countries, such as France and Bulgaria, have already placed a moratorium on fracking, and those countries that do hope to exploit their shale resources are held hostage by the expectation of possible EU regulation.
In this environment of uncertainty, many European countries are looking for additional sources of gas, anxious to reduce their dependence on Russia, but unsure of their ability to exploit shale resources. Countries like Poland, Lithuania and Ukraine are at various stages of planning and building LNG import terminals, as well as associated pipeline systems to distribute gas throughout their country and beyond. As these projects move forward, however, countries are becoming increasingly concerned about securing supply to make full use of the terminals’ capacity.
This is where the U.S. comes in. Current U.S. law allows the export of natural gas to countries without free trade agreements (FTAs) only when the Department of Energy deems it to be in the American public’s interest. In practice, this means that the Department of Energy conducts case-by-case reviews of export license applications for countries without FTAs. There are currently about forty pending applications to build LNG export terminals, and so far, the Department of Energy has approved just four. While the DOE contemplates further approvals, Canada is eyeing the lucrative Asian market and is hoping to export LNG in the Pacific within five years.
Were the DOE to speed up this approval process—a move that would require no new legislation or action by Congress—more export facilities would be built, and European countries could buy gas from the U.S. This would benefit all parties: LNG exports would provide a boost to the U.S. economy by creating jobs and furthering shale development, and they would give Europe another source of gas supply, helping to lower prices in the region.
But beyond the economic arguments, this is an opportunity for the United States to demonstrate its commitment to European security, without more troops or costly military commitments, which are mainly of symbolic value. The Obama administration’s “pivot” to Asia and its focus on events in the Middle East have, correctly or not, left European countries feeling neglected. U.S. approval of further LNG exports would demonstrate America’s continued commitment to its European allies, while supporting U.S. domestic economic and energy goals.