The US' dominance in LNG exports, bolstered by sanctions on Russia and Iran, has reshaped global energy markets. With high prices and geopolitical shifts, countries like the US, Qatar, and Australia are key exporters. Meanwhile, Europe diversifies away from Russian gas, creating complex economic and geopolitical dynamics.
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Picture Courtesy: Oilprice.com
The United States' growing dominance in liquefied natural gas (LNG) exports, coupled with sanctions on Russia and Iran, to influence global energy markets in complex ways.
It is natural gas that has been cooled to -162°C to convert it into a liquid state. This process reduces its volume by about 600 times, making it easier and more cost-effective to transport over long distances.
It is transported in specialized tankers designed to maintain the extremely low temperatures required to keep the gas in liquid form.
Unlike pipeline gas, which requires fixed infrastructure and ties specific buyers to sellers, LNG allows for more flexible and global trade.
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LNG is considered a cleaner alternative to coal and oil, as it emits less CO2 when burned. However, its production and transportation involve methane leaks, a potent greenhouse gas. While LNG can help transition to cleaner energy, its role in combating climate change depends on reducing emissions across the supply chain. |
LNG trade influences geopolitics by creating interdependencies between exporting and importing countries. It shifts energy power dynamics, reduces reliance on traditional pipeline gas suppliers (like Russia), and enables countries to negotiate trade deals that strengthen diplomatic and economic ties.
In 2023, the United States was the largest LNG exporting country, followed by Qatar and Australia.
In 2023, China was the largest LNG importing country followed by Japan, South Korea, and India.
The US shale gas revolution has transformed the country into a major LNG exporter, which changed the traditional global energy markets. It has provided Europe and Asia with an alternative to Russian gas, increased competition among exporters, and given the US significant geopolitical leverage in energy negotiations.
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Shale gas is a type of natural gas that is found in shale rock formations in the United States. It is extracted using hydraulic fracturing, a process that involves injecting water, sand, and chemicals into the rock at high pressure. |
Under Trump 2.0, US policy has prioritized fossil fuel production and exports. On his first day in office, President Trump signed executive orders to ease oil and gas extraction in the US and withdrew from theParis Climate Agreement, signaling a commitment to expanding fossil fuel use.
He also threatened tariffs on the EU if it did not reduce its trade deficit with the US by purchasing more American oil and gas. The increased LNG production and exports has reduced European countries' dependence on Russian gas, and also strengthened the US's status as the top LNG exporter.
What role does Russia play in the LNG market?
Russia is a key player in the LNG market, utilizing its vast natural gas resources to expand its influence. Projects like Arctic LNG 2 and the Yamal LNG facility aim to increase Russia’s market share, mainly in Europe and Asia. However, Western sanctions and geopolitical tensions have complicated its LNG ambitions.
The Russia-Ukraine war has disrupted global energy markets, especially in Europe. Before the war, Russia was a major supplier of pipeline gas to Europe, accounting for over 40% of the EU's gas imports in 2021.
However, after the war began in February 2022, the EU drastically reduced its dependence on Russian gas, cutting imports by 80% from 132 billion cubic meters (bcm) in 2021 to 26 bcm in 2023.
Many European countries have reduced their dependence on Russian pipeline gas and turned to LNG imports from the US, Qatar, and other suppliers. This shift has pushed up global LNG demand and prices, however, it also increased investments in LNG infrastructure.
The war also reshaped global trade flows, with the US emerging as the world's top LNG exporter in 2023.
To reduce dependence on Russian gas, the EU increased LNG imports from the US and Norway, which pushed prices to 2-3 times their normal levels. The EU cut overall gas consumption by 20% through energy-saving measures.
These actions have led to a loss of competitiveness and an economic slowdown in Europe. For example, Germany, the EU's largest economy, saw a 0.2% decline in GDP in 2023 and zero growth in 2024. The IMF projects zero growth for Germany in 2025 as well, compared to 1.8% growth for advanced economies overall.
In 2021, over 60% of the EU's 193 billion imports from Russia were energy−related. By 2023, this figure dropped to 15%, and it is expected to decline further.
The loss of the European market has forced Russia to seek alternative buyers, such as China, but these markets cannot fully compensate for the lost revenue.
Western sanctions have made it difficult for Russia to develop new LNG export infrastructure, which limits its ability to compete globally.
Countries like China, Japan, and South Korea, the world's largest LNG importers, are better equipped to handle high energy prices due to their stronger economies.
However, developing nations like India, Pakistan, and Bangladesh face severe challenges. For example, India's plans to shift from coal to cleaner natural gas have been delayed by rising costs. Pakistan and Bangladesh, which depend heavily on imported gas, have experienced economic difficulties due to the increased commodity price.
Higher gas prices have also increased fertilizer and food prices, impacting food-importing countries in Asia and Africa.
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Many countries have adjusted the gas price crisis by adjusting their energy procurement strategies. They have built strategic reserves, implemented subsidies, or introduced price controls to mitigate the impact of high gas prices. |
Russia and Iran, despite having the world's largest and second-largest natural gas reserves, are effectively blocked from the global LNG market due to geopolitical factors.
US sanctions on both countries make it nearly impossible for international companies to engage in normal commercial relations with them. For example, companies like BNP Paribas and HSBC have faced hefty fines for violating US sanctions. As a result, firms capable of building LNG export terminals are unwilling to work with Russia and Iran, limiting their ability to export LNG and compete in global markets.
US policies under Trump 2.0 have prioritized fossil fuel production and exports to ensure continued investment in the sector. However, the transition to renewable energy and climate goals may ultimately reduce dependence on fossil fuels.
In the short to medium term, LNG will remain essential, mainly as Europe and other regions seek to diversify their energy sources away from Russia. High LNG prices and geopolitical tensions will continue to shape the market, with the US, Australia, and Qatar leading the way.
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PRACTICE QUESTION Q.Analyze the geopolitical implications of the United States becoming the world's top LNG exporter. How has this shifted global energy markets? 250 words |
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