- One corner of the world that has hardly made a dent in the LNG market is Alaska
- Estimates suggest that the North Slope fields and outer continental shelf hold as much as 236 trillion cubic feet of gas
- Japan imported some 80 million tons of liquefied natural gas this past year at a cost of $66 billion
After the Fukushima disaster, Japan shut down its nuclear power plants, eliminating overnight 30% of its capacity to produce electricity. To fill that gap, Japan imported some 80 million tons of liquefied natural gas this past year at a cost of $66 billion. Meanwhile, Alaska is poised for an explosion in natural gas production. This should mean a good trade for both countries, but U.S. politics—no surprises here—is getting in the way.
Japan's demand for natural gas is high and growing. With the nation's nuclear power unlikely to make a full comeback, Japanese companies will continue to consume vast amounts of imported LNG from various corners of the world.
But one corner of the world that has hardly made a dent in this new market is Alaska. America's northernmost state has the gas reserves to meet a substantial part of Japan's demand. Estimates suggest that the North Slope fields and reserves on the outer continental shelf hold as much as 236 trillion cubic feet of gas—enough to serve the Japanese utilities' needs for over 90 years at current rates of consumption.
Buying LNG from Alaska would be a good deal for Japan. Tokyo, which buys LNG on the Asian spot market at a price tied to oil, is currently paying about $16-$17 per million British thermal units. According to a recent Brookings Institution study, delivery of LNG from Alaska to Japan in 2020 will cost $11 or less, allowing for substantially lower import prices—and ensuring continued high Asian demand and a boon to the Alaskan economy.
However, liberals and environmentalists in Washington are working to stop gas exports altogether. Ed Markey, a Democratic representative from Massachusetts, has proposed legislation which would prohibit any exports until 2025, believing that such a ban would keep supplies in the U.S. high and, in turn, prices for heating and power low.
For the Sierra Club and others, stopping exports of LNG is important for lowering demand for new production. The goal is to reduce the need for hydraulic fracturing, so-called fracking, to release natural gas reserves found in shale and other deep deposits.
Now, in an apparent Obama administration kowtow to liberals and environmentalists in the run-up to November's election, the Energy Department is now slow-rolling the release of a report expected to positively assess the domestic economic impact of exporting natural gas.
But there is little evidence that hydraulic fracturing is the environmental hazard it's been made out to be or that the export of LNG from the United States would have more than a modicum of impact on domestic prices. And in this case, Alaskan natural gas does not even require hydraulic fracturing to recover.
Moreover, it is unlikely Alaska's gas will be tapped for U.S. consumption if there is no Asian market. Given the extraordinary amount of reserves in the lower 48 states, Canada and in the Gulf of Mexico, the cost of extracting and shipping gas from Alaska's North Slope would make it uncompetitive with gas from those other sources.
And the political problems don't end with Washington. In Juneau, Alaska's capital, state legislators are fussing over the royalty payments companies will be expected to pay to the state for extracting natural gas from its fields. With elections coming, they are worried that their constituents will judge them as having failed in getting as much from the companies as is possible—a charge that's been leveled at their predecessors when it comes to the state's oil.
The problem is that the oil companies need a firm commitment from the state about the level of royalties to be paid now and in the future before those companies will invest the billions necessary in wells, pipelines and plants to extract and export Alaska's gas. And delays in doing so could be costly, as Japanese utilities appear willing to sign long-term agreements with other suppliers even at higher prices if they think it will address their pressing energy requirements.
The question of whether to export Alaskan natural gas ought to be a no-brainer. Japan is eager to buy a resource that the United States has in abundance. Meanwhile, Alaskans pay no state sales or income taxes and receive a check in the mail every year; natural gas sales would extend those benefits. And for the U.S more broadly, the economic benefits would be a reduction in the trade deficit and the creation of new jobs.
There is also an important strategic payoff. A Japan that is less reliant for its energy on unstable Middle East regimes or Russia is more likely to be a dependable ally in confronting common security challenges. Over the past decade, Russian attempts to monopolize gas supplies to Europe have made dealing with Moscow's revanchist policies a bigger headache for Washington. The same goes for Iranian supplies of oil to Japan, India and Europe with regard to Tehran's nuclear program.
With other Asian nations also hungry for natural gas, American reserves should be used to U.S. geopolitical advantage. In just a few short years, the United States has gone from being an importer of LNG to being potentially "the Saudi Arabia of natural gas." It would be a shame to let politics get in the way of making the most of this fortuitous development.