Expedited Gas Exports Poised to Rankle Russia

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By Brian Dabbs

An incoming business-friendly administration is poised to face a tough decision that strikes acutely at the intersection of diplomacy and economics: Will President-elect Donald Trump’s administration speed up liquefied natural gas (LNG) exports and risk rankling Russia, a country that maintains a near stranglehold over the European gas market?

U.S. industry and like-minded advocates continue to push for quicker regulatory approval for LNG exports, arguing the global market is fertile ground for U.S. cargo and serious profit-making.

Meanwhile, the president-elect has pledged an improved relationship with Russia, a major gas producer and exporter, even as U.S. intelligence agencies and President Barack Obama point the finger directly at Russian President Vladimir Putin’s involvement in the presidential campaign hacking scandal.

Trump, along with his transition brain trust including former Defense Intelligence Agency Director Michael Flynn, has had close personal and economic ties with Russia. Trump’s secretary of State nominee, ExxonMobil Chief Executive Officer Rex Tillerson, built extensive business relationship in Russia and received Russia’s Order of Friendship. Tillerson will step down from his Exxon post at the end of the year.

Still, economists and LNG advocates say Trump will likely aim to boost U.S. energy production and exports, a centerpiece of his presidential campaign and transition messaging.

Clamoring for LNG Export

The U.S. energy community jumped on the nomination of Rick Perry as Energy Department secretary as an opportunity to urge LNG export improvements.

“We need to pursue policies that put certainty back into the regulatory process,” American Petroleum Institute President Jack Gerard said in a statement. “Rick Perry knows the important impact that energy production has on our nation’s economy. In his new role at the Energy Department, he has the opportunity to encourage increased exports of domestically produced natural gas.”

The U.S. first exported cargo out of its lone LNG-capable terminal, Sabine Pass in Louisiana, in February, a shipment that ultimately touched down in Brazil. Since then, U.S. exporters have sent LNG to countries in the Middle East, Western Europe, South America and Asia. The vast majority of 2016 shipments have gone to South America, followed by Asia. As far as Europe, U.S. exporters only landed cargo in Spain and Portugal.

Yet industry has long complained of a sluggish regulatory process. Nearly 30 export applications remained under review at the Energy Department as of the end of November.

Those complaints prompted congressional action. Comprehensive energy overhaul negotiations, which would have required the Energy Department and the Federal Energy Regulatory Commission to make decisions on export applications in specific time frames, collapsed in the final hours of the 114th Congress.

Trump Changes

Easing regulations will facilitate U.S. penetration into the Russia-heavy European market, and the incoming administration is likely to take advantage of that opportunity, most economists and foreign policy experts interviewed by Bloomberg BNA said. The state company Gazprom spearheads Russian export.

Meanwhile, as recently as mid-November emissaries from the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovak Republic pushed U.S. congressional leadership to back legislation to expedite LNG approvals, perpetuating a years-long diplomatic trend.

“Anything that can be done to accelerate approval for LNG terminals will undermine Russia’s political interference in Europe and help out our European allies. They’re clamoring for our natural gas,” H. Sterling Burnett, a fellow with the free-market think tank Heartland Institute, told Bloomberg BNA.

Increased U.S. LNG to Central and Eastern Europe will surely upset Russia, which exports gas via pipeline as a major economic lifeline, but Trump will deliver a U.S. business boon at that expense, Burnett said, citing the president-elect’s “America First” rallying cry.

“I think it would be ludicrous for [Trump] to say ‘Putin is pulling my strings, we’re going to put America last.’ They’d have a hard time defending that,” Burnett said.

Some analysts suggested to Bloomberg BNA the State Department will use its international presence to advance U.S. energy development and relationships. Christopher Guith, senior vice president for policy at the U.S. Chamber of Commerce’s Institute for 21st Century Energy, said the next State Department is likely to employ an LNG cudgel used by former Secretary Hillary Clinton.

“When the State Department stood up [its Energy Resources Bureau in 2011], Secretary Clinton was shilling for shale gas all over the place, trying to push countries to strengthen their own development and prepping likely markets,” Guith told Bloomberg BNA. “I think you will see the U.S. re-embrace that. Not only does the Trump administration want more energy exports, they want to use natural gas as a geopolitical tool.”

Marketability and Russian Response

Many Central and Eastern European countries are virtually 100 percent reliant on Russian gas, yet they may be willing to pay a premium to dismantle that dependence, Richard Kauzlarich, a George Mason University professor and former ambassador to Bosnia and Herzegovina as well as Azerbaijan, told Bloomberg BNA.

“For them, it is a political issue; it’s not a commercial one,” Kauzlarich. “If they see that the United States is in a position to ship more gas to the Balkans and Poland and elsewhere, they’d be willing to consider that.”

Meanwhile, Guy Caruso, an adviser with the Center for Strategic and International Studies and former head of the U.S. Energy Information Administration, said sheer market competition is likely to inhibit U.S. penetration in those markets. U.S. LNG is priced at roughly $3.50 per million British Thermal Units (MMBTU), the benchmark measurement, and logistical costs would bring U.S. shipments to that region to nearly $7 to $8.

That figure soars above Russian sales, Caruso said. The South American and Asian market are far more attractive to U.S. exporters, both Kauzlarich and Caruso said. Still, Caruso said the U.S. export prospect may raise Russian eyebrows.

“Russia has been concerned that U.S. LNG will take market share away from Gazprom in the EU,” he said. “They have had to discount their gas prices to meet the new competition.”

The Russians, in fact, have been readily willing to do that in the past and will continue to in the future, even if U.S. terminal capacity increases and sales prices fall, many of those interviewed said. “Some countries will be able to undercut our price, but in the case of Gazprom, that means not only less profit but less government revenue.”

To contact the reporter on this story: Brian Dabbs in Washington at bdabbs@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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