LNG As Geopolitical Tool: US Would Need To Turn Communist

By John Richardson

USCommunistflagOVER the last couple of weeks, ever since Russia effectively annexed the Crimea, it has been argued that the US can use LNG as geopolitical weapon.

By making the approvals process easier for LNG export terminals, this would make Europe less dependent on Russian gas – and thus make the Russians pause for more thought next time there is a similar crisis, goes the general gist of this idea.

The pro-export lobby is being led by the oil and gas industry and its trade group the American Petroleum Institute (API), which says more exports would create more US jobs, wrote the Financial Times in this 6 March story.

And it quoted Erik Milito, an API director, as saying. “Our LNG exports could significantly strengthen the global energy market against crisis and manipulation.”

The opponents of a big increase gas exports are led by companies, such as Dow Chemical, who want cheap US gas as a feedstock. If too many LNG projects are given the go-ahead, the worry is that this will drive-up the price of methane, and therefore ethane, thus making US petrochemicals less competitive.

“A group of manufacturers called the Industrial Energy Consumers of America said that exporting gas was the wrong geopolitical solution: instead the US should export hydraulic fracturing technology to let others extract gas from their own shale,” continued the FT, in the same article.

But many other newspaper articles and industry observers are supporting more LNG exports for geopolitical purposes.

Republican politicians – who are now saying that the approvals process for LNG projects is too slow  - have also given the idea a stamp of seeming credibility. Call us cynical but has this less to do with the facts on the ground and more to do with trying to inflict damage on the Democrats ahead of the November mid-term elections?

We have our doubts about whether LNG can really be used as a geopolitical weapon and are with the Washington Post when it writes in this blog post:

Preparing natural gas to be loaded onto a ship requires heavy infrastructure. Until fracking recently allowed domestic companies to produce enough gas to export some of it, there’s been no need for that infrastructure. The only existing export terminal, at Kenai in Alaska, has been closed since 2011.

What’s more, even if the Obama administration could wish away engineering realities and conjure newly built natural gas facilities out of nothing, it isn’t clear that doing so would affect European prices. Any US system for exporting natural gas would have to compete with the old Soviet network of pipelines.

“These pipelines can deliver gas cheaply and quickly to the European market, and while US companies build new terminals, Russia’s Gazprom is also planning to expand its capacity with new pipelines. As Michael Levi of the Council on Foreign Relations explains [see also Levi’s blog post on this same subject], US firms will probably ship most of their gas to Asia, where prices are higher than in Europe. 

Suppose the United States subsidised natural gas exports to Europe to encourage countries there to cooperate in a scheme of sanctions against Russia the next time it invades one of its neighbours. Suppose the United States also funded the construction of pipes and tanks to accommodate the flow of gas in a crisis, (infrastructure that would sit idle most of the time). Doing so would just shift the expense of sanctions from Europe to the US federal government, rather than reducing Moscow’s economic leverage. In natural gas as in so many other things in life, there is rarely any free lunch.

Using American natural gas to counter Russian influence in Europe would basically require a national industrial policy, in which the state helps certain industries succeed based on geopolitical or other considerations. You’d have to oppose such a policy if you believe that a country is usually stronger, both domestically and its relations with other states, when it protects freedom of enterprise.

We have highlighted this in bold because it explains our rather strange headline and picture.

If the highlighted paragraph above makes sense, as we think it does, then the US would, perhaps, need a quasi-Communist system, or even an outright Communist system, in order to use LNG as a geopolitical tool.

The blog is not convinced that this would be an easy sell to most US politicians, once the mid-terms are out of the way.

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