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Strategic Gas

The foreign policy case for U.S. energy exports.

Apr 29, 2013, Vol. 18, No. 31 • By GARY SCHMITT
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Japan’s natural gas needs have skyrocketed since the Fukushima nuclear crisis and its shutting down of the island’s nuclear power plants. And as demand has increased, so has the price Japan pays, reaching over $17 per million cubic feet versus $2.60 in the United States. Japan is interested in acquiring supplies not only at a lower price but also from a dependable supplier. An obvious source is Alaska, whose North Slope fields hold enough conventional natural gas to feed Japan’s utilities for eight to nine decades at current rates of consumption. The spread between what it would cost to get Alaska’s gas on line, liquefied, and shipped, and the current prices being paid by Japan is such that Tokyo would garner significant savings, while Alaska would once again strike it rich.

Prime Minister Shinzo Abe made it clear when he visited Washington in February that he was hoping the administration would lean forward in providing Japan with a stable supply of natural gas. What he got from the administration was “we’re still looking into it.” Rather than go against the environmentalist wing of his party, President Obama would evidently forsake the obvious advantages to America of a Japan that doesn’t have to worry about taking policy positions that would be helpful to the United States but might anger a gas supplier such as Russia or, someday, Iran.

Although not a formal ally, India too has made clear its interest in obtaining LNG from the United States. Some analysts expect India’s gas demands to grow at 5.4 percent annually over the next several decades, and it is looking to meet that demand with foreign supplies, including possibly by pipeline from Iran. Far better to have New Delhi buying at least some of its energy from the United States. If the administration thought seriously about natural gas exports, it would make exports a key component in its “pivot” to Asia.

And LNG exports to Europe have strategic importance. Indeed, precisely because gas once destined for the United States is now having to find other buyers, the positive impact is already being felt in Europe. This extra gas is helping Europe in its efforts to move away from heavy dependence on Russia’s Gazprom and, in some cases, has forced the once-monopolizing Gazprom to renegotiate its prices to be more in line with market forces.

Moscow isn’t oblivious to this threat. With almost half the state’s budget coming from oil and gas revenues, Putin can ill afford to see Gazprom lose its preferred position supplying Europe’s gas. Not surprisingly, Russian “businessmen” have been busy trying to frustrate alternative pipelines from the Caucasus, offering sweetheart deals for local energy companies to sweep them into the Gazprom system, spreading cash around as needed, and​—​most laughably, given Russia’s own environmental sins​—​reportedly funding efforts within Europe to hype green concerns associated with hydrofracking.

Moscow’s sway during the Cold War was largely a product of its massive arsenal of men, tanks, and missiles, but today its influence is tied to what comes out of pipelines. While exporting LNG from the United States is not the only way, or even the main one, to  wean Europe off Russian gas, it can be an important step in that direction.

There is also much to be said about the relative security of U.S. energy supplies as opposed to gas exports to Europe from Nigeria, North Africa, and Qatar. Political stability is hardly the calling card of the first two, while Qatar​—​which now controls roughly one-third of the world’s natural gas export market​—​resides in a nasty neighborhood. LNG from Qatar is vulnerable to the Strait of Hormuz closing or a conflict in the Gulf. And its massive LNG facilities are well within the reach of Iranian missiles.

There is no shortage of advantageous geopolitical reasons for moving forward with LNG exports from the United States. But given the fact that every few months there seems to be a new find of shale gas in South America, Africa, the Mediterranean, and elsewhere, the laxity with which the administration is approaching this matter has real opportunity costs. Billions are required in upfront infrastructure investments to drill, liquefy, and ship. Companies are not sitting on their hands waiting for the Obama administration to get its act together when they can find other gas reserves to tap into just as readily. Once major investments are made elsewhere, one has to wonder if those same companies will have the same interest in pursuing projects here, if doing so lessens the potential profits from existing plays or creates too much LNG capacity for the existing market.

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