GGP: U.S. Statement On LNG To China May Signal A Shift To A Less Transparent Approach To Energy Policy
The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.
This article was originally published by Forbes on May 15, 2017.
On May 11 the Department of Commerce issued a 100-Day Action Plan stemming from the recent dialogue between President Trump and Chinese President Xi Jinping at Mar-a-Lago. Among other things, the Commerce Department signaled a willingness to export U.S. natural gas to China in the form of liquefied natural gas, or LNG. The Department of Commerce welcomed China, as well as any other trading partner, to receive imports of LNG from the United States, and guaranteed that China would be treated no less favorably than other non-FTA trade partners.
The Department of Commerce framed its statement as a “consensus on initial commitments” stemming from the Mar-a-Lago meeting. Given that the statement substantively plows no new ground on energy policy, there are two ways to think about it. One could frame it as a mom-and-apple-pie declaration of cooperation that simply restates principles that were already in place. Conversely, it might be an indication of a new, less transparent, more transactional approach to energy policy based on bilateral negotiations.
The first explanation is business as usual, but the second should give us pause.
The United States government has long stated that it is not its policy to discriminate against China with regards to LNG exports. The Obama administration, on various occasions, directly communicated this in engagements with Chinese officials. A joint communiqué following the July 2013 Strategic and Economic Dialogue between the U. S. and China stated that the United States was following the statutory process required for export of LNG to countries with which the United States does not have a free trade agreement, such as China. In July of the following year the U. S. government reiterated this position further stating that in non-FTA evaluations the United States “applies the same rules in every case”, and that any investment in LNG facilities in either the United States or China should be consistent with “commercial- and market-oriented principles.”
Subsequent actions by the Department of Energy have been consistent with these declarations. Since 2012, the Department of Energy has authorized a total of 19.2 billion cubic feet per day of exports to countries with which the U. S. does not have a FTA agreement. This is a large quantity of gas, equal to about two thirds of the total 2016 global LNG market. On that authorized volume, the Department of Energy imposed no restriction on sales to Chinese buyers. The private sector determines the final destination of exported gas based on their own market-based commercial interests. Consequently, U. S. LNG companies have been free to market U. S. gas in China for years.
In terms of broader trade policy, the issue of natural gas exports is not a debate that cuts neatly along party lines. Natural gas producers, trade unions and local community leaders in areas where the terminals would be built have tended to be supportive of LNG exports, driven by their interest in revenue from increased production and jobs created building and operating the export terminals. On the other hand, both environmentalists and industrial manufacturers have been skeptical of increased exports. Environmentalists have expressed concern about the environmental impact of increased drilling while industrial manufacturers have expressed concern that overseas demand would drive up the cost of the natural gas that they needed for their processes.
The Department of Energy is required by law to consider these issues and more by conducting a public interest determination before approving export of LNG to any non-FTA country. This is a transparent process in which the public has full access to relevant data, and the government is required to publicly consider, evaluate, and rebut arguments made by interested stakeholders.
Since receiving its first application for LNG exports from the lower-48 in 2010, the Department of Energy has ensured that the public has had the ability to engage in the important debate around LNG exports. The department has been compelled to clearly explain its resulting decisions through the orders it has issued. This good policy, and clearly signals our nation’s intent to our many allies and trading partners.
The process was sometimes contentious. On seven separate occasions during my time as a Department of Energy official I was called upon to testify before Congress on the department’s process for evaluating LNG exports. This real-time scrutiny went a long way towards ensuring that the public’s interest was served by decisions made by the government.
Bilateral negotiations conducted behind closed doors are unlikely to produce coherent, sustainable policy on energy trade. Future gas export decisions may impact Mexico, if the Trump administration moves forward with a renegotiation of NAFTA that changes Mexico’s status as a free trade partner. And over the long term, Russia’s dominant influence over European natural gas markets may be influenced by future Department of Energy actions. Policy decisions on energy trade involve a complex set of tradeoffs. Stakeholders on all sides of this energy policy debate should insist on the continuation of a process that features transparency and accountability to the public.
Christopher Smith is the Advisory Board Fellow at the Center for Energy Studies at Rice University’s Baker Institute for Public Policy. From 2013 through 2017 he served as Assistant Secretary for Fossil Energy at the United States Department of Energy. @chris_smith
The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.