The National Interest: Time for Natural Gas Diplomacy

The United States is undergoing one of the quietest economic revolutions in history. Unthinkable only a few years ago, the shale gas revolution has drastically reduced domestic natural gas prices, making it possible for the U.S. to shutter heavily polluting coal plants, reduce the overall carbon intensiveness of our economy, and spur domestic manufacturing and petrochemicals industries. While the domestic benefits—and possible environmental costs—of this revolution have been the subject of vigorous public debate, relatively little attention has been paid to the immense geopolitical and economic potential for the United States if it were to ease its stringent rules that effectively prevent liquefied natural gas (LNG) exports to countries without free trade agreements with the United States.

While the U.S. is enjoying a supply glut and record low prices for natural gas, both Europe and Asia are continuing to see high prices due to supply-side constraints. In Asia, prices are about three times those here. High growth rates in Asia, environmental and safety concerns about coal and nuclear power, and fears regarding supply disruptions in Europe all point to strong long-term demand for natural-gas exports to Europe and Asia.

In Europe, meanwhile, natural-gas production has declined, making it more dependent on imports. It is no secret that much of Europe relies heavily on Russia for its gas supplies, a source of continued concern as European officials fear Gazprom’s virtual monopoly power and a possible cutoff of supply. Russia has long used energy supplies as a source of political leverage with its neighbors, who have few (if any) alternatives for supply. In order to maintain its commanding position in the European gas market, Russia has built the North Stream pipeline network to Germany and is hoping to receive approval for South Stream to Southern Europe. While these pipeline projects are designed to reduce dependency on transit states and increase Russia’s leverage, most Russian natural-gas exports to Europe must still pass through Belarus and Ukraine, and as relations between Russia and those countries continue to be fraught with tension, so has the certainty of natural-gas flows to Europe. MORE