Jim McTague‘s latest “D.C. Current” column in Barron’s focuses on the potential impact of the recent American energy boom on policies affecting Europe.
The vulnerable EU countries began lobbying the U.S. to lift export bans, which President Obama could have done with a wave of his pen. Republicans demanded immediate action, sloganizing that America should become Europe’s “Arsenal of Energy,” a riff on the “Arsenal of Democracy” catchphrase employed by Franklin Roosevelt in 1940 to rally support for arms sales to Great Britain. Obama, however, was hearing opposition to lifting the ban from airlines and manufacturers fearful that selling domestic oil and gas abroad would raise U.S. prices, squeezing profit margins just as their services and products were becoming price-competitive with those from overseas.
Obama tried to halve the baby. He sorely wanted a free-trade agreement with Europe. The export ban doesn’t apply to countries with which we have formal trade agreements. Obama told Europe that the easiest route to tapping into our energy supplies was to sign an agreement. In short, he was using Russia’s threat as leverage in trade talks.
NOW THE WORLD’S SUPPLY OF NATURAL GAS has soared and consumption in Europe has fallen, owing to weak economies. Prices are so low that cash-flow-starved Russia is unlikely to mete out punishment to creditworthy gas customers. So there appears no immediate need for the U.S. to ride to the rescue.
Gas producers, however, argue that the U.S. should waive the ban anyway to ensure long-term customers for our gas. Erik Milito, director of upstream and industry operations for the American Petroleum Institute, an energy-industry trade group, says that EU countries remain eager to diversify their supplies. Lithuania has constructed a terminal to receive ships bearing liquefied natural gas. The reconfiguration of EU pipelines eventually could enable LNG terminals in Spain and Portugal to funnel imported gas across the continent.
They prefer to deal with the U.S., but there are other suppliers. Milito wants the U.S. to waive gas-export restrictions so the U.S. gas industry can lock up long-term contracts. Increasing gas exports would create several hundred thousand jobs, he claims. And domestic prices would hardly budge, he asserts, because frackers can produce more gas to meet the demand. This is the powerful case the gas interests plan to make to the new, Republican-dominated Congress. Hearings already are in the works in both the House and the Senate.
