According to some news report, the two countries will hold “ministerial level consultations” to consider moving forward on contracts for exports of liquefied natural gas from Canada to Japan. There is an opportunity for the U.S. to lead, but perhaps the Obama administration is yet again “leading from behind.” The question about the U.S.’s capacity to export LNG will be on the hot seat this week during a Congressional hearing on the geopolitical implications and mutual benefits of U.S. LNG exports with members of the House Subcommittee on Energy and Power and high-ranking officials from eight natural gas-consuming countries.
Several nations – from India to South Korea – are in demand for U.S. LNG exports. Japan in particular could be one of North America’s biggest customers for liquefied natural gas exports, as the country seeks to lock in long-term contracts from a stable energy supply source at competitive prices. Japan is the world’s biggest LNG buyer and imports almost 100 percent of its energy. But the country is struggling to pay premium prices for LNG in Asia; hence it is turning abroad to bargain for more affordable prices.
In a matter of hours after the Fukushima tragedy, Japan switched from nuclear power to gas. Japan is now entirely without atomic power after its last operating reactor closed on September 15. The country’s utilities need other sources of energy to compensate for their sudden loss of nuclear energy capacity.
As a result, the Japanese have scrambled, only to find high-priced spot cargos of LNG. According to Canada’s Financial Post, Japan paid $15.74 per million British thermal units on average for LNG in July, compared to an average of approximately $3.64 for U.S. natural gas futures traded in New York.
Enter Canada. Although Canada’s Prime Minister Steven Harper has been courting Japan, there is still time and space for the U.S. to do the same. But the U.S. Department of Energy needs to show the same initiative as the Canadians in order to move liquefied natural gas (LNG) projects forward in a timely manner.
Unlike the United States, Canada has no restrictions on shipping LNG to non-FTA countries. The United States has great economic incentives to follow in Canada’s footsteps and ship gas to non-FTA countries, and the wherewithal to do so. Japan needs help, and America has the means to enter a win-win situation to help a key strategic ally and boost our economy. Indeed, even considering the cost of liquefaction and transportation, American energy companies would have a sizeable profit margin when shipping gas to the Pacific Rim.
The two facilities on the Oregon coast are in a perfect position to ship LNG to Asia. The Jordan Cove Terminal in Coos Bay, Ore., filed an application to ship gas to non-FTA countries seven months ago. The Warrenton, Ore., LNG Terminal filed an application 12 months ago.
These applications, along with 19 others, have just been sitting in the queue, waiting for approval from the Department of Energy. This is nonsensical. The Energy Department is blatantly ignoring an opportunity that would be enormously beneficial to America’s economy.
The Obama Administration needs to show the same initiative and dedication as our Canadian counterparts. With at least 63 LNG export projects outside the U.S. either planned or under construction the United States has only a short window to lock in long-term supply contracts. It is not too late for America to start shipping LNG to non-FTA countries. We have the means – now the Department of Energy just needs to act fast to approve the outstanding LNG export permits.
Economides is a chemical and petroleum engineer and an expert on energy geopolitics. Currently he is a professor at the Cullen College of Engineering, University of Houston.