The US potentially could exploit East Asia's hunger for LNG, but it will have to move quickly, experts suggested at a Sept. 20 forum.
Authorizing LNG exports would be one of the easier decisions in building strong trade relations with that region's countries, but it will need to be followed quickly with construction of the necessary pipelines from producing tight gas fields to coastal liquefaction terminals, they said.
Exports particularly of Alaskan North Slope LNG would quickly find markets in South Korea and Japan, particularly since the latter country is moving away from nuclear power following the Fukashima plant accident in March 2011, according to Seethpathy Chander, director general of the Asian Development Bank's Regional and Sustainable Development Department.
"US LNG export potential is a major issue in Asia, particularly in Seoul and Tokyo," said Mikkal E. Herberg, research director at the National Bureau of Asian Research (NBR)'s Energy Security Program and the report's editor. "That's especially true for the next 5 years until major Australian and other export projects come on line."
Their observations came during a discussion of issues raised in a new NBR report: "Oil & Gas for Asia: Geopolitical Implications of Asia's Rising Demand." The Woodrow Wilson International Center for Scholars cohosted the event.
Balancing needs
Policymakers initially will have to strike a balance between making US natural gas inventories high enough to keep prices competitive for chemical and other manufacturers, and allowing enough LNG exports to stimulate sufficient demand to make it unnecessary to shut dry gas in and flare gas associated with tight oil production, speakers said.
"The increasing availability of US energy at low prices has made many companies rethink their strategies of locating abroad, and others to return to this country," said Robert D. Hormats, US Undersecretary of State for Economic Growth, Energy, and the Environment. "This is having an impact on US reindustrialization."
US LNG exports potentially could shake up world markets, but members of Congress will need to close the gap between energy security politics and national trade policy first, maintained US Rep. Charles W. Boustany Jr. (R-La.), who chairs the House Ways and Means Committee's Oversight Subcommittee.
"I think there's going to be continuing tension about how we use our inexpensive gas," he said. "The potential trade balance improvements from LNG exports are obvious. But the lower-cost feedstock aspect is interesting because it has made the US a net chemical exporter for the first time since the 1940s."
Boustany said investments will be needed not only to construct pipelines to coastal liquefaction terminals, but also to deepen the Houston Ship Channel and other marine approaches to those terminals so LNG tankers can use them.
Barriers for China
China's national oil companies would like access to North American gas production because it's more economical, said Erica S. Downs, a fellow in the Brookings Institution's John L. Thornton China Center. "The Chinese government would need to overcome obstacles such as not having a free trade agreement with the US," she added. "But there's certainly interest there."
East Asian refineries also would welcome less expensive LNG from North America, especially in Singapore where petroleum product processors have chronically lose money, Herberg said.
China also is building 1 million b/d of new capacity and upgrading what it has to accommodate more sour crudes, while India has expanded significantly already, he reported. Japanese product exports also could grow as domestic demand declines, Herberg indicated.
The potential economic and energy security contributions of more US LNG exports to East Asia is so obvious that it's almost a domestic policy no-brainer, Chander observed. "I'm a little surprised to hear discussions about whether to let LNG exports take place in the US, a bastion of free markets," he said. "That seems more appropriate for a country like Bangladesh."
