High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
By Agnia Grigas Aug 30 (Reuters) – Last week, American liquefied natural gas (LNG) made its way to the somewhat unlikely market of Lithuania. The former Soviet republic traditionally bought its gas from Russian state company Gazprom; this was its first shipment from the United States. For President Donald Trump, that must have been a gratifying sign of the success of his administration’s nascent energy diplomacy.
The U.S. became the world’s largest producer of natural gas around 2011, overtaking its long-time competitor Russia and starting to rival Saudi Arabia in oil production. This was made possible by the shale revolution – the breakthrough of hydraulic fracturing, better known as “fracking,” that could split rock formations below ground and boost the extraction of oil and gas resources from shale rock formations. Environmentalists oppose LNG exports on the grounds that methane leakage from fracking can make natural gas as harmful to the climate as coal and that the LNG trade involves the energy-intensive measures of freezing gas, shipping it across oceans, and then regassifying – a process that further increases the carbon footprint.
It was the Obama administration that lifted longstanding U.S. restrictions on oil exports and started exporting LNG, but it is Trump who has been able to claim political capital out of the boost in trade. The sector offers the U.S. president bragging rights at home by providing jobs and rising export revenues. With Exxon Mobil’s former CEO, Rex Tillerson, as secretary of state, it is also no surprise that LNG exports are emerging as Trump’s preferred strategy for strengthening relations with Europe and Asia.
In June, Energy Secretary Rick Perry articulated a strategy of “energy dominance” that takes advantage of America’s energy production not only to improve national energy security but also to expand the country’s influence abroad. As Perry explained: “An energy-dominant America will export to markets around the world, increasing our global leadership and our influence.”
The United States is expected to emerge as the world’s third-leading LNG exporter by 2020, behind Australia and Qatar. That will cement its status as a new energy superpower, a position that can help Washington support its allies – many of whom are dependent on energy imports – and win over new friends, like rising energy consumers in Asia, while reining in foes such as energy-exporter Russia.
Energy-hungry China is emerging as possibly the most important market for the United States. U.S. energy company and leading LNG exporter Cheniere has been selling to China since 2016 and in May Trump struck a deal with China that made it easier for Chinese companies to buy LNG directly from U.S. suppliers. Trump administration officials like Perry and Secretary of Commerce, Wilbur Ross, have both claimed that LNG exports to China and Japan can narrow America’s trade deficit with each country. Indeed LNG trade was on the agenda of discussions in the first meeting of Japan’s Prime Minister Shinzo Abe and Trump early this year.
Trump similarly praised the delivery of American LNG to South Korea during the visit of South Korean President Moon Jae-in to the White House this June. A close ally of the United States, energy-poor South Korea has long depended on LNG imports from Qatar and Indonesia to meet its energy needs.
Trump also raised U.S. LNG exports as a potential means to reduce America’s trade deficit with India during his first meeting with Indian Prime Minister Narendra Modi in June. India is the fourth largest importer of LNG in the world and one whose gas demand is only expected to rise. Until recently it largely relied on imports from Qatar, though U.S. LNG started making its way to India last year.
The Asian markets hold promise for the U.S. overall, but could also foster competition with Moscow, which has been planning to build gas pipelines and/or boost LNG deliveries to China, Japan, Korea, and India.
In Europe, Washington’s ability to offer an alternative supply has finally provided its allies with a substitute to Russian gas. American LNG started going to Spain, Portugal, and the United Kingdom in 2016, but few expected this gas to enter the Central and Eastern European markets dominated by Gazprom.
Nonetheless, Cheniere launched its inaugural delivery of LNG to Poland in June. During his visit to Poland the following month, Trump reiterated the implications of this delivery: “We are committed to securing your access to alternate sources of energy, so Poland and its neighbors are never held hostage to a single supplier of energy,” he said.
While reducing Gazprom’s dominance is part of Washington’s long-standing agenda, the Trump administration is the first to explicitly link the trinity of diplomacy, LNG trade, and national economic interests in Europe, Asia, and beyond. However, U.S. officials should be wary of implying that Washington’s LNG diplomacy is centered on making America’s friends buy gas to prove their loyalty. It’s already in Washington’s economic interests to support its allies’ energy security. There is no need for the White House to belabor the point. (Reporting by Agnia Grigas)
(c) Copyright Thomson Reuters 2017.
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