It’s a case of three interests coming together in the United States: geopolitics, mercantile endeavours and Trumpian electioneering. This time around, the EU had it relatively easy in prompting a significant shift in US domestic regulation.
When the European Union and the United States were negotiating the Transatlantic Trade and Investment Partnership in 2013-2016, it was the EU — strongly supported by Central and Eastern European member states — that was asking the US to liberalise its export regime for natural gas. The Obama administration wasn’t very forthcoming. Fast-forward a few years, and now it’s the US pushing for the EU to buy more American liquefied natural gas.
Ever since the EU pledged to help the US export more LNG as part of the July Trump-Juncker joint statement, the Commission has been pulling out the public relations loudspeakers, regularly publishing mind-blowing growth data for US LNG imports to the EU. “Since the first cargo in April 2016 US LNG exports to the EU have been increasing substantially, and have seen a steep rise after President Trump and President Juncker’s meeting in July 2018, increasing by 272%”, the Commission’s press services announced on Thursday (2 May) as US and EU energy officials met on the sides of a transatlantic energy business meeting.
So what happened with US gas?
Within one decade the US turned from a net importer of gas to a net exporter. That comes back on the shale gas revolution that unfolded in the second half of the last decade. “The shale revolution broke through”, the International Energy Agency wrote in its latest report on OECD gas market trends. US gas production jumped 11.5% alone in 2018.
Gas prices in the US are low, due to abundant resources. The Trump administration has tried – not very successfully – to halt closures of coal-fired electricity plants, which were being replaced by gas-powered plants. All this helps explain why US LNG producers are keen to get onto global markets and meet the demand of energy-thirsty markets in Asia and Europe. However, although US LNG has made an appearance in some EU terminals, it still barely makes a mark on EU import statistics. Russia, Norway and Algeria still cover the bulk of EU gas imports.
Export restrictions in the US
US legislation, which dates back to the 1930s, restricts exports of gas. International gas shipments are only permitted without limitations to countries with which the United States has a free trade agreement: this severely restricts opportunities for the US shale gas industry.
Whereas president Trump is mainly perceived as the man of coal, he also is a man of gas. North Dakota, one of the epicentres of US shale gas production, delivered 63% of votes in favour of Donald Trump in the 2016 elections. Trump is widely seen as keen on delivering results to his electoral base.
Nord Stream and NATO
Then there is the geopolitics. “Ensuring a free and sovereign Europe is critical to the US, there is no better way to achieve this than by enhancing energy security”, said US energy secretary Rick Perry in Brussels on Thursday. “Expanded natural gas trade will contribute to the collective strength and resilience of our Nato partners”.
The above statements are a veiled reference to the EU’s and US’s current misgivings about Nord Stream 2, the second Russian Baltic pipeline that is expected to go onstream soon.
The key aim of the US, the Commission and many EU member states, is to be able to reduce the EU’s continued import dependency on gas. The EU has been trying to diversify its import routes and sources by facilitating the construction of LNG terminals to allow imports of shipped gas and through the development of South Stream, a pipeline system that is due to ship Caspian gas to Europe by next year.
Nord Stream is seen as a risk factor in two ways: it could lock in the German market – the EU’s largest gas market – for Russia. It would also deprive Ukraine and Poland of their role as transit countries for the Soviet era pipelines that currently ship most of Russia’s gas to the rest of Europe. This in turn is seen as an opportunity for Moscow to exert greater political leverage over smaller Central and Eastern European countries whose economies are on the receiving end of Russian pipelines.
German reliance on Russia for its gas is already increasing. Russian gas accounted for 40.8% of German gas imports in 2018, up from 36.5%, according to a recent McKinsey report . “With Nord Stream 2 expected to come online in the next few years, it stands to reason that Russian gas will continue to take a bigger share”, reckons McKinsey.
The Jones Act being questioned
The US new policy announcement does not overhaul its gas export legislation. It does not amount – by far — to a full liberalisation of the country’s export regime. But it is a significant shift in the way export licences are granted. So far, US gas export licences have been company and country-specific. The two new measures announced to the European press on Thursday allow two US ports to export LNG an overall amount of gas freely to any country with which the US has no FTAs in place, as long as the destination is not expressly prohibited by Washington.
“Under the orders signed today, Driftwood and Port Arthur are authorised to export up to 3.88 and 1.91 billion cubic feet per day of natural gas as LNG, respectively, to any countries that do not have a free trade agreement with the United States and that are not prohibited under US law or policy”, a US statement reads.
The US shale revolution could impact other areas of US legislation. It is already shaking some of the foundations of the famous Jones Act, which covers shipping services along US coasts.
The Jones Act bans foreign ships from doing the job – much to the chagrin of competitive European shipping companies, which have been clamouring for an opening up of the US market for many years. The Jones Act was one of the various factors that contributed to the failure of TTIP.
Yet last week US media reported that the White House was considering opening up shipping of LNG to the US territory Puerto Rico to foreign services providers — as the US shipping industry is clearly not able to cope with rising demand for shipping services.
Berlin might have been irked by a tweet by Donald Trump accusing Germany of being a ‘captive’ of Russian gas last year. Yet the Trump administration could end up doing a favour not only to those who seek greater import diversification in the EU, but also to those who want a greater share of the US shipping market. All this without having to negotiate an impossible TTIP or trade agreement with Washington.