What will fuel US energy exports to Europe?
President Donald Trump held out the hope, after his July 25 meeting with European Commission President Jean-Claude Junker, of new and increased US liquefied natural gas (LNG) exports to Europe. Europe has been working to diversify its energy sources, and, in early August, the EU Commission reiterated support for US-EU trade in natural gas, urging the United States to ease LNG export regulations.
Currently, Europe mostly imports piped gas from Russia, Norway, and Algeria. LNG is a secondary source, accounting for 12 percent of European gas demand in 2017, although it is significant in some markets, such as Spain. The EU pipeline imports is less expensive that US LNG. But, as noted in a recent report from the Atlantic Council, “a shift in the US regulatory framework can help reduce costs of US imports and can build confidence in the overall trade relationship,” and report urges US policymakers to take steps in that direction. Negotiations in that direction between the US and EU have already taken place within the framework of the Transatlantic Trade and Investment Partnership (TTIP), which has been dormant since even before Trump took office.
One measure urged on the US by the Atlantic Council is to remove what the EU considers a non-tariff barrier to US LNG exports: the requirement of export licenses—a measure that dates back to the passage of the Natural Gas Act of 1938. Under that scheme export permits must be issued by both the Federal Energy Regulatory Commission (FERC) and the Department of Energy (DoE). FERC also acquires input from the US Coast Guard, the Department of Transportation, and the Maritime Administration. The DoE must also separately determine that exports are “in the national interest.” Regulatory changes in 2014 actually lengthened the permit process.
The Atlantic Council report urges the US to amend the Natural Gas Act of 1938 by eliminating the national interest determination and otherwise streamlining the LNG export permitting process. “These rule changes,” the report says, “if proposed in the autumn of 2018, could be finalized in early 2019 following formal notice and comment process in the United States. Importantly, these reforms do not require lengthy trade treaty negotiations.”
These measures, according to the report, would “support more US LNG exports to the EU” and “help counterbalance Russian influence on the European continent.” It will be difficult to compete with Russian gas on price, the report noted, although increased supplies of US LNG may bring those prices down and “some Europeans may buy US LNG at somewhat higher prices just to have another reliable supplier.” It is also necessary on the European side to upgrade LNG infrastructures.
However, increased European demand for LNG is not a foregone conclusion. A new paper from the Columbia University Energy Policy Center finds that a renaissance of natural gas in the EU-28 electricity sector looks unlikely, with only modest room for fuel switching and growth. According to the report, “Fuel prices, carbon prices, and interest rates will be critical factors in determining whether demand for natural gas increases or declines.”