New administration’s US LNG export policy moves uncertain, forum told

Effects of yet-to-be-clarified Trump administration policy moves—from possible new individual free trade agreements if the country withdraws from multination treaties to an emphasis on increased domestic gas production and new pipeline construction—on US liquefied natural gas export growth are uncertain, speakers agreed at a Jan. 26 Atlantic Council forum.

They also generally concurred that changes in global LNG markets will probably have a greater impact, and suggested that the US should be prepared to continue using its position as the world’s largest gas producer to help allies diversify their supply sources and reduce their dependence on a single supplier, including Russia.

“The new administration has said that its primary policy is to put ‘America First.’ When it comes to natural gas, we’ll have to see whether it means primarily more American jobs and production, or a continued involvement in global markets,” said Agnia Grigas, a nonresident senior fellow at the Council’s Dinu Patriciu Eurasia Center, and author of a new report, “A Natural Gas Diplomacy Strategy for the New US Administration.”

“I believe this represents an unprecedented opportunity for the US to take a global gas leadership role,” she maintained. “This is an opportunity for us to reshape our relations with some of our rival powers, particularly those that are energy-hungry such as China.”

Suedeen G. Kelly, a former Federal Energy Regulatory Commission member who now is a partner at Akin Grump Strauss Hauer & Feld LLP and chairs its energy regulation, markets, and enforcement practice, said that the US could make federal approval and authorization processes for LNG export facilities more efficient.

“The former comes from FERC under a long process that makes applicants meet several requirements over years,” she explained. “If we had more resources at the agency, we could make it faster. But there’s significant opposition now. Litigation to stop projects has increased. In order to prevail in the courts, FERC has to show it fully considered possible environmental consequences and a need for a proposed project.”

National interest determinations

The US Department of Energy’s LNG export authorization process is more complicated since federal law requires it to determine whether LNG sales to a foreign country that does not have a free trade agreement with the US is in the US national interest, she continued.

Kelly said that former Texas Gov. Rick Perry (R), if the US Senate confirms his nomination to be energy secretary, could make the process more certain by restoring the policy of issuing exemptions when they appear to be justified. He also could rescind a provision the Obama administration inserted allowing authorizations to be reconsidered later, which has dampened interest in US LNG export projects, she added.

“At least on the face of it, having fewer free trade countries will have an adverse impact somewhat,” she said. “On the other hand, the market itself is interesting. Even if you are selling into a free trade country, you need to be able to change destinations if problems develop. You need a blanket authorization to do this.”

The US may find out quickly what the impacts are if the administration cancels participation in the Trans-Pacific Partnership, which Grigas said would affect at least three non-FTA countries.

“We well may find out,” said a third speaker, Tim Boersma, a senior research scholar at Columbia University’s Center on Global Energy Policy. “We’ve had an administration that’s been very active in energy diplomacy. The special envoy at the State Department went to Europe frequently to urge allies not to support the Nordstream 2 gas pipeline project.”

He sees inherent energy policy contradictions in the new administration’s pronouncements so far, particularly encouraging more production of coal as well as gas. “There are a number of reasons these aren’t going to affect energy exports,” Boersma said. “The new president has said he would support more LNG exports. The secretary of state-designate has said he would support more improvements in free trade. Going forward, the question is what would happen to free trade if gas prices spike. Would the administration try to end some export agreements?”

US-Russia policy contradiction

Grigas said, “I see a contradiction between the US trying to establish a closer relationship with Russia and energy market realities. Today, Russia and the US are both competitors in the oil and gas markets. Exports certainly have been crucial for Russia. It has worked hard to build and maintain its markets.”

Boersma noted, “European policymakers recognize that enhanced cooperation has been very beneficial. Their chief goal should be to make their countries more resilient. Europeans still need to get their house in order. The projects we have seen that were politically supported took a long time to come to fruition. Demand has been a bigger factor. While I don’t want to dismiss the 10 bcm that is being shipped on the Southern Gas Corridor into a European market where demand is decreasing, it’s still a drop in the bucket.”

The discussion’s moderator, Richard Morningstar, the founding director and chairman of the Council’s Global Energy Center, said, “If I had to bet, I would say, absent problems the [Trans-Adriatic Pipeline System] is having with landing sites in Italy, the program as it presently is will take place. There’s been too much investment already. Turkey is a major shareholder in the pipeline and wants to maintain a good relationship with Azerbaijan. Russia can live with 10 bcf of shipments to Europe because it’s so small.”

Grigas said, “I think Turkey is the country to watch. It’s a key country both for Europe and Russia in their strategies. Europe wants it to maintain the Southern Gas Corridor. Russia wants it to help maintain its market dominance. I think Turkey is the country to watch for the next administration.”

Kelly said, “A lot of discussion about LNG exports to Europe has been political. While some is being exported there to Portugal, Europe still relies heavily on pipelines from Russia. Still, the inflow of gas into a market creates more liquidity. While Europe still will rely heavily on Russia for its gas, it would be symbolic for a US cargo to arrive in Lithuania at its import terminal. That’s not likely, but Lithuania has begun to import LNG from Norway.”

There may be changes in DOE’s LNG export authorization process, but they will take time, she continued. “Policies can be changed on a dime at DOE and FERC the moment there’s a new leader in charge,” Kelly said. “At FERC, resources have been focused primarily on electricity. I believe it’s time for them to move to gas, starting with FERC’s relationship with cooperating agencies to have them work with shorter time lines and respond more quickly. In an administration where all the goals seem aligned around this, the chances for doing this look better.”

Contact Nick Snow at nicks@pennwell.com.

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