US LNG Exports, Political & Economic Profitability
Shuaib Bahman
US policies and strategies in the energy sector have, over recent years, undergone serious changes and developments. The US is an ideal example of international between energy and policy. In other words, correct policymaking in the first stage transformed this country from an importer to an exporter of energy. In the following stages, US politicians tried their best to find new markets for their oil and gas. Therefore, the US has managed to become a gas exporter. In recent months, the US’s LNG exports to Asia have grown significantly.
Since the fall of 2020, the United States has significantly boosted its liquefied natural gas (LNG) exports to the top LNG-importing region, Asia, to the point of setting record highs and competing with Qatar for supplying the fuel to the biggest LNG buyers.
Below-normal winter temperatures in north Asia—the home of the world’s top three LNG importers Japan, China, and South Korea—led to high demand for gas in recent months, while the recovery of industrial activities from the pandemic also helped to push up demand.
According to estimates from Refinitiv, American exports of LNG to the top three importing nations reached 3.2 million tons in February 2021, which was two and a half times the previous highest monthly export levels.
U.S. LNG exports to Asia were already surging last year compared to 2019, despite the pandemic and the lull in demand in the spring and summer months, when U.S. exports and liquefaction volumes were very low.
U.S. exports of LNG to Asia surged by 67 percent in 2020 as total LNG exports out of the United States jumped by 32 percent, the Energy Information Administration (EIA) said last month. American LNG exports to Asia surged by 67 percent last year, and accounted for nearly half—or 3.1 bcf/d—of all LNG exports out of the United States, according to EIA data.
The US has managed to outdo Qatar in LNG exports mainly due to its significant progress in the gas industry, particularly shale extraction. The US’s huge investment in shale oil has changed the country’s status from an importer to an exporter of energy. Prior to shale oil and gas extraction, the US’s dependence on external energy, particularly the Middle East, was increasing on a daily basis. Therefore, in light of advanced technology and innovation, the US has supplied its own needs and found a significant place in global markets.
Of course, cold weather in North Asia where the top LNG importers – Japan, South Korea and China – are located explains why gas demand has increased in recent months. That is while improvement in industrial activities following covid-related lockdown has pushed up demand.
Profitability
Energy exports, particularly in LNG, are profitable. Such profitability was focused upon mainly during the presidency of Donald Trump. Although shale gas influence on the US energy mix and foreign policy started under President Barack Obama, his successor witnessed significant profitability.
Under Trump, the US adopted the policy of diversification in its energy exports. But all eyes were fixed upon the oil market. The US won new markets in the oil sector, but it seems that gas trading would be more profitable for this country. In 2020, LNG exports removed about $10 billion from US trade deficit.
Given the high profitability of LNG sales and less environmental concerns over its production and consumption, the US is highly likely to focus on enhancing LNG exports over time. As noted under Trump, permission for US LNG exports may be extended at least up to 2050.
Political Tool
Increased US LNG exports have turned into foreign policy leverage for exerting political pressure on other nations. For instance, the bulk of US sanctions against Iran’s oil and gas industry is undoubtedly designed to fill the void left in the market. Main buyers of Iran’s energy – Japan, South Korea, India and Turkey – have now shifted to the US for supplying their needs.
Apart from that, the Americans have benefited from energy, particularly LNG exports, to expand their ties with neighbors and allies across the world. For instance, the US took serious steps in a bid to reduce the European Union’s dependence on Russia for LNG. Imposing sanctions on the companies involved in the Nord Stream II pipeline project and increasing political and even security pressure on the countries involved in this project are all indicative of the US’s long-term gas policy.
Outlook
US energy diplomacy approach and increased shale oil and gas recovery using advanced technologies along with its political, economic and security impacts on the US foreign policy are largely changing the world’s energy map. In fact, development of shale oil and gas industry has given rise to various political and economic consequences whose impacts are seen not just on energy markets, but also on politics.
As the US strategy to reduce energy dependence and instead to increase oil and gas exports constitutes a major policy for this country, one has to wait for new aspects of US influence in this domain, because reduced dependence on external energy would give the US more freedom of action to pursue its ambitious strategies in various parts of the world.