LNG exports’ immediate geopolitical impacts limited, senators told

Direct geopolitical impacts from the US authorizing LNG exports more quickly would be limited, witnesses told a US Senate committee. But global market consequences could be substantial because it would send a definite signal that the country is committed to becoming a major player, which potentially could accelerate changes indirectly, they added.

“Signals certainly can be important, but they have to be followed up by concrete action, such as the gas ultimately entering the marketplace,” US Energy Information Administration Administrator Adam Sieminski told the Senate Energy and Natural Resources Committee during a Mar. 25 hearing on LNG exports, jobs, and geopolitics.

“It can be argued that increased domestic production already has had an impact on global markets because the US is not importing gas,” Sieminski continued, adding, “Completion of the LNG facility at Sabine Pass already is having an impact on the psychology of the market. Promoters of other facilities say they’re having a better time negotiating with customers and getting financing.”

Recent events in Ukraine have brought the question of whether the US accelerating LNG exports can politically affect overseas events into the foreground, committee members and witnesses agreed.

“The last thing [Russian President Vladimir V. Putin] and his cronies want is competition from the United States in the energy race,” Chairwoman Mary L. Landrieu (D-La.) said in her opening statement. “Tyrants and dictators throughout history have had many reasons to fear revolutions, and this US energy revolution is one they should all keep their eyes on!”

Ranking Minority Member Lisa Murkowski (R-Alas.), meanwhile, observed, “When we talk about these issues, I think it’s important to keep it in the context of timing. This is a narrowing window. I wonder what the US could do make a difference in Ukraine and reduce Russia’s influence. Even if we did something immediately, it will still take a couple of years for gas to start reaching Europe. I believe it’s important to send a signal now.”

Change preference

Two committee members, John Barrasso (R-Wyo.) and Mark Udall (D-Colo.), separately said they planned to propose amendments to a pending Ukraine sanctions bill that would change the US LNG export preference from countries having a free-trade agreement (FTA) with the US to those that are members of the North Atlantic Treaty Organization or World Trade Organization. Hours later, the US House Energy and Commerce Committee’s Energy and Power Subcommittee held a hearing on Rep. Cory Gardner’s (R-Colo.) bill that would do the same thing.

Witnesses at the Senate hearing emphasized it would take more than simply accelerating DOE’s national interest determination process to have an impact in Ukraine, however. Edward C. Chow, a senior fellow at the Center for Strategic and International Studies’ Energy and National Security Program, said Ukraine will need to significantly reform its domestic gas system that historically has skewed toward Russia and been very corrupt.

“It’s not just shale gas. You can increase conventional production in Ukraine,” Chow said, adding, “But before doing that, Ukraine has to clean up its act. There are disincentives that discourage production. They’ve been there for 20 years because it facilitates production. It will be necessary to get significant commitments from the new government before financing will be provided.”

David L. Goldwyn, president of Goldwyn Global Strategies LLC and a senior nonresident fellow at the Brookings Institution, said, “Some analysts say it won’t matter to have LNG exports because they would go to Asia instead of Europe. I think that’s a premature judgment. They discount impacts on price formation because buyers negotiate two years in the future. They also dismiss the impact on financing. If a project’s cost is based on Henry Hub prices and not world oil prices, it’s more attractive to finance.”

Goldwyn questioned heavy emphasis on DOE’s national interest determination process for LNG export projects, saying the US Federal Energy Regulatory Commission’s review is more substantial: “If we just let projects which had cleared FERC go to the head of the DOE line, that would put projects which have received the necessary environmental and financial approvals be considered more quickly.”

Europe’s role

Chow said, “I would emphasize that our European allies are the ones with leverage over Russia over oil and gas exports, not us; 80% of its oil and gas exports go to Europe. President Putin plans to visit China next month to try and improve sales there. But many European countries have outright bans on hydraulic fracturing and other unconventional production.”

Jaroslav Neverovic, Lithuania’s energy minister, told the committee there are 22 LNG import facilities within the European Union with a combined capacity of 6.7 tcf/year, and another 6 installations with 1.06 tcf/year of capacity are under construction. Europe’s actual LNG imports fell by almost half to 1.6 tcf/year in 2013 from 3 tcf/year in 2010, however, because LNG prices typically are pegged to those of crude oil, making them too high to displace gas from Russia or elsewhere on the continent, he added.

He said the requirement for US LNG bound for non-FTA countries to be deemed in the national interest was a sticking point, but noted that US President Barack Obama has the authority to rule all applications to export LNG to non-FTA countries fit that category. “We hope that his administration will do just that by opening the LNG export doors to non-FTA NATO members,” Neverovic said. “If it doesn’t act in a timely way, we urge Congress to step in and amend the law.”

Goldwyn said the EU should complete market integration so gas could move from Spain’s Iberian Peninsula to the rest of Europe. “Eliminating destination clauses won’t be enough,” he maintained. “There’s much more that can be done to move gas around that continent instead of trying to develop more LNG import terminals.”

Chow noted, “Europe’s infrastructure is not as well as connected as it could be, and the market structure is not always favorable, particularly when some countries are trying to protect their monopolistic distribution systems. They also need to develop more of their energy resources beyond renewables, which they’re good at it, and develop more of their oil, gas, and coal.”

Contact Nick Snow at nicks@pennwell.com.

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