Reworked LNG export policy should consider longer term, speaker says

The US should consider how a reformed LNG exports policy could help facilitate a longer-term transition to renewable and alternative energy sources, a former US Department of State official suggested.

The US should consider how a reformed LNG exports policy could help facilitate a longer-term transition to renewable and alternative energy sources, a former US Department of State official suggested.

“Are we really walking the talk and using this opportunity as a bridge to renewable fuels?” asked Jennifer M. Harris, who was a member of DOS’s policy planning staff responsible for global markets, geo-economic issues, and energy security during US President Barack Obama’s first term.

“There are steps we can build into exports that would move us into more alternatives,” she said without elaborating during a Sept. 30 discussion of LNG exports at the American Security Project’s day-long Next Generation Energy Security Conference.

Her remarks came a day after the US Federal Energy Regulatory Commission gave Dominion Cove Point LNG LP authorization to build an LNG export facility on the Chesapeake Bay near Lusby, Md., east of Washington (OGJ Online, Sept. 30, 2014).

Harris, who currently is a senior fellow at the Council on Foreign Relations, said that economic consequences of US LNG and crude oil exports are “threshold positive, with interesting questions we should consider as a country.”

More exports could increase the US dollar’s strength and dampen overseas demand for US-produced goods, she noted. “We also need to consider how to retrain skilled labor in some parts of the country,” she said.

Weapon or leverage?

Another question is whether US crude and LNG export potential is a geopolitical weapon or simply a leveraging device, Harris said. “It’s more than simply should we sell them more gas,” she explained. “Right now, American LNG is not competitive with Russian pipeline gas in Europe, although there have been some global price changes due to increased US production.

“Oil exports offer more potential to put pressure on unfriendly actors,” Harris said. “I think we’re going to see more pressure put on Russia. We had a lot of freedom of action to assess the situation between Moscow and Kiev as it escalated the last 10 months.”

The US also should examine ways more LNG and crude exports could help build better economic relationships with European, Pacific Asian, and South American countries “before it starts to look like an anybody-but-China strategy, which could be troublesome,” she added.

Other panelists said US crude and LNG export policies need serious reforms. “There is no reason Lithuania should pay twice what Germany does for Russian gas, particularly since it’s closer,” said moderator Marik A. String, an associate at Wilmer Cutler Pickering Hale Dorr LLP in Washington and a nonresident senior fellow in the Atlantic Council’s International Security Program.

Christopher Guith, senior vice-president for policy at the US Chamber of Commerce’s Institute for 21st Century Energy, said the need was obvious 5-6 years ago when US gas production began to grow so dramatically. “Ultimately, this has been as much about politics as economics,” he said. “It also provided us an important prelude to discussing crude exports.”

‘A sleeping giant’

“The US basically is a sleeping giant. Right now, we can offer [overseas] buyers a new paradigm,” maintained Andrew Ware, strategic projects director at Cheniere Energy Inc. in Houston. LNG markets are becoming less regional and increasingly global more countries prepare to receive LNG for the first time, he said. “We see a very vibrant market, and a broad role for the US to play in it,” Ware said.

“We’re starting to see in Asia that as the price of Brent crude falls, so do LNG prices which are tied to it,” said Guith. “That’s having an impact on traders there, who use it to hedge their prices.”

He said he does not expect LNG exports to seriously raise US gas prices, a concern some chemical and other manufacturers have expressed. “We can produce a ton of ethylene for $300,” Guith said. “In Asia, it costs $900. Add to that our much lower electric prices, and we still have a strong magnet for attracting more manufacturers.”

The current US crude and LNG export stance is also inconsistent with the country’s overall position favoring free trade and open markets, panelists noted. Guith said he sees parallels between how this country handles gas exports and what China did with rare earths that made the US take it before the World Trade Organization. “It lessens our authority to be the arbiter of free trade,” he observed.

“There are lots of steam valves built into the WTO,” Harris said later in the discussion. “There have been major precedents, but there also are national security arguments that hardly anyone has raised. I think there’s a basis for stronger criticism of Russia for its pipeline political maneuvers than of the US for its LNG export policy. Still, it needs to be changed to bring a broken part of our overall world trade position into line.”

Contact Nick Snow at nicks@pennwell.com.

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