Berzins: Will Europe Benefit From Shale Boom?
Liquefied natural gas is an essential part of Europe’s strategy to secure its energy supplies
BERLIN — Europe is watching with interest as Congress debates liquefied-natural-gas exports. The outcome will shape domestic manufacturing, foreign affairs and free-trade commitments for years to come.
With the shale gas boom bringing unprecedented natural-gas production, the United States must make a choice between keeping its newfound bounty at home and sharing it with other countries.
The decision could have major geopolitical consequences. American liquefied natural gas would allow Europe to turn toward a trusted ally for energy rather than rely on risky suppliers such as Russia and Qatar. Exports to Europe would promote U.S. foreign policy objectives.
For decades, European states have been locked into long-term contracts for natural gas, mostly from Russia. When Russian gas stopped flowing in 2009 because of a pricing dispute with Ukraine, families in Southern and Eastern Europe were left to shiver in the bitter January cold.
Liquefied natural gas is an essential part of Europe’s strategy to secure its energy supplies. In 2011, LNG accounted for a quarter of the European Union’s natural-gas imports, but about half of this LNG came from Qatar. Overreliance on Qatar for LNG makes Europe’s energy security contingent on stability in the Persian Gulf.
The United States could provide Europe with reliable and affordable energy. The United States recently has become the world’s largest natural-gas producer, and natural gas in the U.S. costs about a quarter of what it costs in Europe — $3.33 per million British thermal unit versus $11.87 per million Btu in Europe as of the end of January.
Congress is debating whether to allow these newfound natural-gas resources to be shared with countries that have not signed free-trade agreements with the United States. This includes the European Union. Although the two just launched negotiations on a free-trade agreement, a final agreement could be years away. Until then, European friends of the United States are left outside the preferred circle.
In a hearing on natural gas on Feb. 12, the Senate Energy and Natural Resources Committee focused primarily on the domestic economic considerations of LNG exports. Industry and manufacturing groups fear that unlimited LNG exports would not be in the public interest because they would lead to skyrocketing natural-gas prices in the United States, dampening employment and costing consumers.
But Europe does not need unlimited natural-gas supplies. Even limited quantities of LNG from the United States to Europe could have an outsized effect on Europe’s energy security. As Europe diversifies its energy suppliers, it gains leverage with its present suppliers. Already, the discovery of shale gas in the United States has given European utilities bargaining power against existing suppliers. The LNG currently in Europe’s energy mix was initially slated for American markets but instead landed on European shores after the U.S. shale gas boom and allowed Europe to develop a spot market for gas. This alternative price point allowed utilities in Poland, Germany and Italy the opportunity to renegotiate prices in their long-term natural-gas contracts with Moscow’s Gazprom in 2012.
It matters, of course, how the United States will proceed with granting permission for exports to Europe. Several senators from natural-gas-producing states have introduced the Expedited LNG for American Allies Act of 2013 (HR 580, S 192) that would reduce barriers for LNG exports to NATO allies and Japan, giving them the same preferential treatment as countries that have free-trade agreements. As the hearing showed, senators will hear economic warnings from home-state manufacturers that rely on natural gas, most notably for chemicals and fertilizer.
The United States should take care not to offend European counterparts by choosing to support exports only to NATO states. The European Union’s natural-gas markets are integrated, and European legislation is opposed to destination clauses on natural gas. This is ever more relevant in the context of free-trade negotiations between the United States and the EU.
As Sen. Mark Udall, D-Colo., argued during the hearing, “geopolitical ramifications” are a vital part of the discussion. Domestic LNG can provide European states greater independence from potentially risky suppliers, and greater energy security in Europe is in the interests of the United States.
Kristine Berzins is a Berlin-based energy analyst and author of the report “European Views on American Natural Gas Exports” for the American Clean Skies Foundation. It can be downloaded at cleanskies.org/eu-views-natural-gas.