Richard McGregor and Ed Crooks Financial Times
The Obama administration has signalled support for more plants to export liquefied natural gas, as the US embraces its surging energy production as a key new element of its national security policy.
Barack Obama said at the weekend the US was likely to be a net gas exporter by 2020, the strongest sign yet that the president is swinging his support behind higher energy sales overseas.
The Department of Energy is studying applications for new liquefied natural gas terminals, with approval of one in Texas likely within months. It would be only the second such approval granted for sales to countries without trade agreements with the US, such as Japan, the world’s largest importer of LNG.
The decision over new export terminals coincides with a White House rethink of energy policy, aimed to give it an elevated place in US diplomacy.
“I’ve got to make an executive decision broadly about whether or not we export liquefied natural gas at all,” Mr Obama said during a trip to Costa Rica. “But I can assure you that once I make that decision, then factoring in how we can use that to facilitate lower costs in the hemisphere and in Central America will be on my agenda.”
The North American shale revolution over the last decade has unlocked large reserves of gas that were not previously accessible at commercially attractive rates.
US gas prices have fallen to levels that are about one-third of the cost of LNG imported to Europe, and one quarter of the cost of LNG in Asia, a development with the potential to upend global markets.
Any approval for new terminals is unlikely until after Ernest Moniz, Mr Obama’s nominee for energy secretary, has been confirmed, likely in the coming weeks.
Although the energy department is the decision maker, the issue is being debated at senior levels in the White House, which sees energy exports as giving the US new geopolitical leverage.
In a little-noticed speech in New York in late April, Tom Donilon, the White House national security adviser, said the new energy bounty allowed the US “a stronger hand in pursuing and implementing our international security goals”.
Mr Donilon said increased US and global gas production could break the link between the gas and more expensive oil prices and “weaken control by traditional dominant natural gas suppliers”.
The White House is also promoting gas as an alternative fuel to oil and coal as a way to reduce greenhouse emissions.
The initial pace of approvals for new LNG export terminals is likely to be measured, a nod to domestic political sensitivities about how to manage the country’s surging energy production.
A vocal lobby of energy-intensive manufacturers, including Dow Chemical and Alcoa, has urged the administration to limit export permits, arguing unrestricted LNG sales overseas could erode the energy cost advantage created by the shale boom’s cheap gas.
However, US officials believe that being seen to restrict exports for the benefit of domestic industry would send a terrible signal about the country’s support for free trade.
Peter Orszag, the former White House budget director, now at Citigroup, echoed those concerns on Friday, saying the US would struggle to argue against China’s restrictions on exports of rare earth minerals if it was holding back gas exports.
“It is very difficult as a general principle to justify export restrictions on something like this, where there’s no proprietary national security technology concern,” he said.
Significant sections of big business also oppose restricting exports. “We are firmly in the camp that says LNG exports should be permitted,” said John Rice, the General Electric vice-chairman.
“We have lots of manufacturing and some energy intensive operations, and we would benefit from $3 gas too, but in the long run we think it’s in our interest and every other competitive company on a global scale to have a level playing field.”
Under the 1938 Natural Gas Act, companies are not allowed to export gas from the US without a licence. For countries that have a trade agreement with the US, those licences are granted automatically. For countries without a trade agreement, the energy department says it will approve exports “unless it is shown that the authorisations would be inconsistent with the public interest.”
So far, only one US LNG export project, Cheniere Energy’s Sabine Pass plant in Louisiana, has been approved for sales to non-trade agreement countries, which include Japan, members of the European Union, and fast-growing markets in Asia such as China and India.
That licence was granted two years ago, and there are 19 more applications for such worldwide export permits filed with the energy department.
The next project in line for approval, the Freeport LNG development in Texas, will be only the second granted for sales to countries without a trade agreement.
There are 22 more projects with approval to sell to countries with which the US has a trade agreement, but of those only South Korea is a significant gas importer, and the plants will probably need to sell to other countries to be commercially viable.
A study commissioned by the energy department argued last year that unrestricted LNG exports would be in the economic interest of the US, and the department said it planned to assess individual permit applications on a case-by-case basis in the order in which applications were received.
When the Freeport decision is announced, the industry will be looking for indications about the pace of subsequent approvals.
Bill Cooper, president of the Center for LNG, an industry group, said: “There have been numerous studies done, and the overwhelming consensus is that there is no reason why the administration should not grant these permits.”
Sarah Ladislaw, an energy expert at the Center for Strategic and International Studies in Washington, said: “I think we’re going to see this administration approve export permits but very slowly.”
But she said it wasn’t yet clear whether the US was going to adopt a protectionist posture or not.
If a new system isn’t in place by 2017, the US is “not going to make it,” she said, because that is when the window for putting pressure on the US to permit projects will diminish, as supplies increase and demand begins easing. “Then the policy impetus goes away for a while,” she said.