U.S. Sen. Richard Lugar’s (R-IN) legislation to put America’s NATO allies on the same footing as free trade agreement (FTA) nations for the purpose of liquefied natural gas (LNG) exports — the LNG for NATO Act — raises interesting talking points, even if its hopes are slim for this Congress, or even the next, analysts said.

Lugar last week said the United States should use its natural gas bounty to export LNG to NATO countries to help them reduce their reliance on gas supplied by Russia and Iran, thereby bolstering U.S. national security.

“The United States is in possession of vast resources that could directly contribute to the energy security of our closest NATO allies, who face over-reliance on Russian and Iranian gas sources,” said Lugar, who is the ranking member on the Senate Committee on Foreign Relations. “In 2009, the United States overtook Russia as the world’s largest natural gas producer due to vast unconventional reserves. At current U.S. consumption rates, the United States possesses perhaps a century of gas supply.”

Analysts at Washington, DC-based ClearView Energy Partners LLC said the bill could be a hard sell. But nevertheless, it broadens the discussion of LNG exports beyond commercial and economic considerations by adding the dimension of using the U.S. natural gas resource for geopolitical leverage, they said. The bill also is the first legislative vetting of LNG exports since the U.S. Department of Energy (DOE) released a macroeconomic study it commissioned that supports LNG exports (see NGI, Dec. 10), they said. It will allow “Republicans to test appetites for exports within their own caucus ahead of the lively debate we anticipate early next year.”

Exports of LNG to countries with which the United States has a free trade agreement (FTA) are presumed to be in the public interest and are routinely approved by the DOE. However, exports to non-FTA countries must be reviewed and determined to be in the public interest before they are approved. Only one planned U.S. LNG export project has such clearance: Cheniere Energy’s Sabine Pass terminal in Louisiana.

Stirring the pot with Lugar’s bill might not accelerate ultimate approvals of exports to non-FTA countries to a date before the third quarter of 2013 or later, which is when ClearView has said it expects action. “Indeed, a lively political debate could even slow them down. However, early signs of Republican support for exports and a better view of the administration’s stance could certainly help clarify investor expectations,” the analysts said in a note last week.

Lugar said his legislation would amend Section 3 the Natural Gas Act to create a presumption that licenses to export U.S. natural gas to NATO allies are in the U.S. public interest, “giving NATO allies the same preferential treatment enjoyed by our free trade partners. U.S. shale gas reserves are already transforming European natural gas markets since LNG previously destined for the United States has now been made available for Europe. The United States can do much more to both use LNG exports to benefit NATO allies facing energy insecurity in Europe and to promote economic growth in the United States.”

The senator said Turkey relies on Iran for 20% of its natural gas imports, “which could come under increased pressure when the European Council’s decision of October 15, 2012 to prohibit the ‘purchase, import or transport of natural gas from Iran’ is implemented. “Moreover, several allies and partners in central and southeastern Europe (Bulgaria, Croatia, Hungary, Greece, the Czech Republic and Moldova) will see their long-term contracts with [Russia’s] Gazprom expire in the coming years. For these countries, targeted U.S. LNG exports, along with infrastructure investment and other policy responses, could help alleviate energy insecurity.”

Currently, Europe imports LNG mainly from Algeria, Egypt, Oman and Qatar to meet about 26% of its gas needs, Lugar said. “However, numerous European countries, some with financing from the European Bank for Reconstruction and Development, are considering construction of additional LNG import terminals, including Bulgaria, Croatia, Estonia, Lithuania, Latvia, Poland, Romania, Turkey and Ukraine,” he said. “In light of these dynamics, the United States is well positioned to become a strategic energy supplier of LNG to NATO allies in need of diversification.”

Lugar is not the first to see a geopolitical dimension to the LNG export question. Ken Medlock, a Baker Institute energy fellow at Rice University in Houston, told NGI last summer that cracking the door to exports even just a little would create arbitrage opportunities that long term could pressure the traditional oil-indexed pricing scheme of global LNG. Middle Eastern countries, in particular, he said, have benefited from the emergence of the Asian gas market (see NGI, Aug. 13).

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