By Alexanser Mirtchev
To date, the extensive policy debate over
production of non-traditional fossil fuels, such as shale gas, and the
resulting possibility for the use of those resources by the United
States has not adequately focused on an important consideration: the
geo-economic and foreign policy implications and advantages to the United
States, its allies, and global economic security overall, stemming from these
new fossil fuel resources.
New gas resources and exports of liquefied
natural gas (LNG) from the U.S. are an added economic resource, which can allow
the U.S. to mitigate its own and the reliance of many of its allies in Europe
on external sources of fossil fuels. Europe is extensively dependent on gas
imports, especially from Russia, as well as Algeria, Qatar and others.
According to the International Energy Agency, Europe depended on oil and gas
imports for over 60% of its demand in 2010, and this dependence is set to
increase to over 80% by 2035. At the same time, the external energy suppliers
to the EU have demonstrated their willingness to use the leverage of European
energy dependence for foreign policy purposes. Several times in recent history,
Russian disputes with countries through which those pipelines transit – most
notably disputes with the Ukraine in 2006 and 2009 – have caused either actual
supply shortages or fear of supply shortages to Europe, which was sufficient to
roil the local markets. The simple knowledge that Europe depends on foreign gas
has allowed exporters to use producer power as a foreign policy leverage.
The preferred manner of transporting gas to
European markets has been pipelines, but currently only one meaningful
alternative pipeline route is being developed – from Azerbaijan to Europe – to
provide a check on Russian natural gas power. This raises the importance of
LNG, the other alternative form of supplying distant markets. Because LNG is
transported in vessels, supply is not limited by pipeline infrastructure but
instead can be delivered to various markets so long as LNG regasification
facilities exist. European countries such as Belgium, France, Italy, the
Netherlands, Portugal, and Spain currently import LNG. Additional LNG
regasification facilities and increased supplies of LNG on the world market
will increase European energy security. This is where the U.S. is in position
to become an adequate optional source of energy and energy security for its
European allies.
With huge supplies of natural gas and the
technical capability to produce large quantities of gas on a steady basis for
years to come, the introduction of meaningful volumes of U.S. LNG into world
markets will disrupt the current market, threaten the incumbents and ultimately
lead to the creation of a liquid global spot market for LNG. It will not
require duplicative infrastructure, only sufficient adjustments and adaptation
to ensure that loss of other suppliers will not constrain consumers. Once
European buyers are able to tap into liquid global markets rather than
long-term contracts with one or two suppliers, they will be less intimidated by
prospects of shutdown or other forms of manipulation of gas deliveries. The
mere availability of adequate LNG regasification infrastructure and supply may
be all that is necessary to prevent gas exporters from using natural gas supply
as geopolitical leverage, nudge them to take diversification seriously and spur
a wave of market reforms, contributing to the improvement of global economic
security.
The geopolitical opportunities presented by
the shale revolution and the prospect of LNG exports cannot be underestimated,
and yet these considerations seem to rarely factor into the current debate in
the US about LNG exports. The economic rationale for increased LNG exports from
the US have been well documented. A recent IHS study puts the increase in US
industrial production at $252 billion by 2020, thanks to lower energy prices in
the US and other economic ‘spillovers’ from unconventional oil and gas. The
objections fall into two categories: (i) those large US industrial consumers
that benefit from low natural gas prices and thus for parochial reasons want to
limit demand by closing off export markets in order to keep an imbalance
between supply and demand that results in artificially low prices; and (ii)
environmental interests opposed to hydraulic fracturing used to produce much US
natural gas and who therefore want to close off export markets in order to try
to limit natural gas production. While the economic case alone outweighs these
objections, the case for US LNG exports becomes even stronger when one further
takes into account how US LNG exports stand to advance US foreign policy,
geo-economic and geopolitical interests.
Dr. Mirtchev is an
economist who frequently writes on global economic security and energy issues
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