U.S. & EU: NO LNG
On March 6, 2014, Republican Cory Gardner and other members of the House Committee on Energy and Commerce introduced bipartisan legislation to help expedite the export of U.S. shale gas as liquefied natural gas (LNG) to markets overseas. The bill, called H.R. 6, the Domestic Prosperity and Global Freedom Act, stated that all pending LNG export applications for which a notice had been published in the Federal Register as of March 6, 2014, would be granted a response without delay. The decision concurred with the letter issued by Ambassadors of the Visegrad Group, Poland, Hungary, the Czech Republic and Slovakia, urging the U.S. Congress to help them buy American natural gas, this way reducing their dependence on Russian gas imports. Both documents were undoubtedly inspired by the annexation of Crimea and the ongoing unrest in eastern Ukraine, which is the main transit country for Russian gas. In 2013, Europe got over 24% of its gas from Russia, half of which passed through Ukraine. Nonetheless, despite vigorous international debate about how EU energy security could improve by importing American LNG, it is not certain that the U.S. considers LNG exports to Europe a priority.
The "shale boom" in the U.S. started in 2008 when shale gas production increased by 71% in comparison to the previous year. Therefore, it is a relatively new development and so far no national strategy has been drafted in regards to its future advancement. This is partly due to U.S. land and mineral ownership rights, which allow private individuals to own much of the mineral reserves across the country, as opposed to governmental institutions. A significant portion (about 31%) of U.S. mineral reserves are owned by the federal government, but these federally-owned non-fuel-containing mineral reserves can be staked and claimed by prospectors who acquire private rights to them. Thus, it is not the State, but rather the land owner who negotiates contracts with companies interested in oil and gas extraction.
Apart from land ownership rights, other factors that triggered the U.S. "shale revolution" should be mentioned, as they also answer the question of why the EU, despite having shale gas reservoirs, could not duplicate the success. Next to technology innovation (horizontal drilling and hydraulic fracturing) the US has at its disposal favorable geology, water availability, natural gas pipeline infrastructure and the associated open-access policy. As a result, while in 2000 shale gas provided only 1% of U.S. natural gas production, by 2010 it grew to over 20% and the U.S. government's Energy Information Administration predicts that by 2035, 46% of the United States' natural gas supply will come from shale gas. The main shale reservoirs are located in Texas (Barnett reservoir) and across New York, Pennsylvania and West Virginia (Marcellus reservoir). The shale gas supplies from Pennsylvania alone equal the entire natural gas export capacity of Qatar, the world's second largest natural gas exporter in 2012. Fracking, apart from increasing U.S. production of natural gas and high quality light tight oil (shale oil), helped the country start exporting more refined petroleum products than it used to import during the last 60 years.
Robust development of shale gas exploration raised a question if the U.S. is interested in exporting part of it as LNG and if so, which countries would be the prime recipients. The debate regarding whether to export the shale gas has divided not only Congress, but also public opinion as for the first time since 1960s the country has the chance to become energy independent. According to BP's Energy Outlook 2035, published in January 2014, the shale boom in the United States could help the country to reach energy independence by 2035.In addition, some worry that an increased export of gas would cause natural gas prices to spike at home.
In the State of the Union address delivered to Congress on January 28, 2014, President Barack Obama said: "The all-of-the-above energy strategy I announced a few years ago is working, and today, America is closer to energy independence than we've been in decades. One of the reasons why is natural gas." In a fact sheet distributed alongside the speech, the White House announced the creation of Sustainable Shale Gas Growth Zones which would help regions come together to make sure shale gas is developed in a safe, responsible way. President Obama announced specific ways to better focus on leveraging natural gas in manufacturing, transportation, and power generation and reducing dependence on foreign oil through investing in new manufacturing plants that rely on natural gas. The Administration declared expanding tax incentives to replace oil with U.S.-produced natural gas in trucks and other vehicles. It is worth noting that neither the State of the Union address nor the associated fact sheet mentioned plans of exporting shale gas abroad; instead, they focused on developing the national economy based on natural gas rather than on crude oil, and thereby fulfilling the government's promises on climate change policy as well as on achieving energy independency.
Currently, there are twenty-four applications for building LNG export terminals on hold; they cover twenty-two facilities where businesses are seeking to build and operate LNG export terminals mainly on the East coast. There are more than 110 LNG facilities operating in the U.S., performing a variety of services, but no export terminal for LNG has been opened so far. To export LNG to countries that do not have free trade agreements with the U.S. (which is the case of the EU countries), the projects must obtain two major approvals: an approval to export LNG from the Department of Energy (DOE) and another approval to construct liquidation facilities from the Federal Energy Regulatory Commission (FERC). The latter is more expensive and takes longer to receive. As of March 24, 2014, the U.S. Department of Energy (DOE) had approved only seven applications for permits to export LNG to nations that currently do not have free trade agreements with the US. At the end of 2015, the first LNG export port, called Sabine Pass, will be opened in Louisiana. First contracts have been already signed with South Korea, Japan and Taiwan; the countries will start importing U.S. LNG in 2017. In the meantime, as of February, the U.S. has begun exporting LNG by truck to Canada and Mexico.
The slow process of granting permissions for new LNG export facilities, the pursuit to maintain energy independence, the lack of a free trade agreement with the EU, and the so-called American "pivot to Asia" announced four years ago are only a few reasons why exports of U.S. LNG to Europe will not start any time soon. Considerable impediments also lie on the EU side. According to some analysts, Europe lacks necessary energy policies and pipeline infrastructure to transport gas from European LNG ports to landlocked EU countries. In addition, the American gas, after liquidation, transit and regasification will be at least double the price of what Europe currently pays Russia. This is particularly important for the EU countries that do not depend on Russian gas and can get it cheaper from Algeria, Libya or Egypt. Ironically, these are the same countries which administer the majority of LNG ports.
The fact that EU countries do not lean equally on Russian gas is one of the main reasons why the EU struggles to formulate a common energy security policy, which would harmonize energy policies of all EU member countries, strengthening at the same time the EU position when negotiating new energy contracts. In spite of increasing the share of renewable energy in the EU energy mix, the EU dependency on imported gas and oil will continue to grow, and by 2035 the EU will rely on foreign gas and oil for more than 80% of its supply. Therefore, new agreements and partnerships, mostly with the Caspian region and North Africa, are on the way.
Shale gas extraction in the U.S. is a considerably new development and the government has not decided how much of this natural resource is going to be exported oversees yet. However, the first LNG export contracts have been already signed with the two top LNG importers: South Korea and Japan, which on average pay 25% more for LNG than Europe. The U.S. may start exporting LNG to Europe, but it probably will not happen before both sides sign the Transatlantic Trade and Investment Partnership (TTIP) agreement, which is at least a few years from completion. In the meantime, Europe will have to continue working on new diversification strategies, construction of additional LNG ports, and on finalizing ongoing projects like the Trans-Anatolian natural gas pipeline (TANAP), which will start transporting gas from the Shah Deniz field in Azerbaijan in 2018. Finally, the most important repercussion of the American "shale revolution" for the EU, in light of ongoing unrest in Ukraine, will be the fact that it has triggered a necessary debate on energy security in Europe. The rapidly changing geopolitical situation forced the EU to make energy security a priority, something that the Central European EU member countries have been advocating for since the last Ukrainian crisis in 2008. In the best case scenario, the EU will take advantage of the shifts on the geopolitical map and will start working on a strategy that would allow the EU to speak about energy security with one voice.
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