Climate Booster And Foreign Policy Tool

Liquefied-natural gas (LNG) is a bridge fuel that will help the world reach decarbonization as an energy source that is vastly cleaner than its hydrocarbon competitors, such as diesel and coal. When it comes to power generation, it is still able to employ much of the infrastructure used by other fossil fuels. Lately, it has assumed another role: in Europe, LNG is protecting the continent from a total blackout as Vladimir Putin is contemplating turning off the spigot, while in the United States, it is a gold mine that can potentially turn the country into a future energy superpower.

America’s LNG production rapidly increased from January 2022 to November 2022 by 11.2 billion cubic feet per day, roughly 12% of production, to fill unmet European demand after Russia’s invasion of Ukraine. The collapse of the EU-wide Ostpolitik and Russia’s unreliability as a future supplier have opened new vistas for American LNG despite a higher price than piped gas. American LNG joins gas from, Australia, Oman, Qatar, and other markets to fill Europe’s and the world’s energy thirst.

The United States now has the world’s highest LNG export capacity, and that capacity is set to increase by more than 40% by 2025 through the opening of the Plaquemines facility in Louisiana and the Golden Pass and Corpus Christi projects in Texas.

America seems destined to remain the leader in global LNG production and export capacity, which is good news for domestic producers, the environment, and foreign allies. American LNG producers are expecting record profits. Exports of American LNG increased by 12 percent during the first half of 2022, with all signs pointing upwards. European energy giant Engie, along with companies from Germany, the UK, and Poland, have all signed contracts with producers along the Gulf Coast. Among the LNG producers who signed long-term contracts, including Cheniere Energy, Sempra, and Energy Transfer, optimism reigns, as many of them expect a positive outlook and the promise of expansion in ongoing projects.

This LNG bonanza has inevitably led to further international competition and the risk of over-investment and over-supply. Algeria, Nigeria, and Qatar are just some of the major players in the European market who seek to profit from the current geopolitical and market situation.

However, American production expectations may already be tamping down, as Europe’s gas storage facilities are approaching capacity. The EU’s ambitious climate plan would also see LNG consumption decrease by 2030 to embrace renewable energy sources.

Dwindling European demand is not the only hurdle in the future path of America’s LNG production: outages at production facilities continue to limit output, as do transit issues. Increasingly severe hurricanes also raise questions about export capacity. LNG producers must also overcome the dilemma of price volatility, with recent financial and logistical difficulties creating demand contractions for LNG in many developing countries.

Asian markets, on the other hand, had to pay the higher price of LNG due to the surge in Europe’s demand. Given China’s growing influence in the region, American allies in East Asia need the supply of LNG just as much as Europe. The short-lived de-facto Chinese blockade of Taiwan’s LNG ports via “military exercises” proves that Beijing is equally likely to engage in the same blackmail tactics as Moscow and use gas as a geopolitical tool. These worrisome developments highlight the need for coherent energy, defense, and foreign policies that will prioritize our democratic allies in what shapes up to be a Two-Front Gas War.

To preempt this possible blackmail and sustain shipping, America must make sure it maintains its naval dominance and invest in cheaper shipping of LNG. Improvements in shipping technology are already making it faster and more affordable to ship LNG. Lower transport costs and more efficiency will increase export capacity and reduce overall costs, making LNG more attractive to developing countries. Increasing regulation on CO2 emissions will also drive-up demand for bridge fuels like LNG at the expense of oil and coal.

The more gas America can send to its allies in Asia and Europe, the more strategic space they will enjoy to counter Russia and China. LNG will play a growing role in American foreign policy and the transition to green energy. Policymakers need to recognize LNG’s importance and prioritize measures such as easier permitting, facilitating high-volume gas storage, and making doing business with LNG producers easier. Doing so will encourage developing countries to transition to a cleaner and more efficient energy source, help American producers, and deprive authoritarian leaders leverage they have over our allies.