The Transatlantic Energy Trade
For years the center of gravity for global LNG trade was in Asia. China, India, Japan and South Korea were routinely over 60% of global LNG imports. Asia-Pacific was often over 70%, reaching a high of 75% in 2018. Australia and Qatar were geographically better suited than the US to meet this demand, and our exports were in any case inconsequential until 2017.
Two events of great geopolitical importance followed. The US rapidly grew its LNG exports and is now the world’s #1. Meanwhile Germany’s energy strategy, built on fantasy rather than realpolitik, collapsed. Today Europe is 31% of global LNG trade, a share that has doubled over the past seven years.
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Western Europe has adopted policies more oriented to reducing Greenhouse Gas (GHGs) emissions than any other region. Over the past decade, CO2 emissions from fossil fuels declined at a 2.2% annual rate, almost twice the 1.2% rate of the US. Recently they’ve been rather too successful: 2023 was –6.2% versus 2022, but it’s mostly because the high energy prices caused by climate policies have caused GDP growth to slump. The German economy is headed for a second straight year of no expansion in 2025.
Six years ago President Trump famously criticized German leaders for relying on Russian gas imports via the Nordstream pipeline while US troops were stationed in Germany protecting them from Russia. Trump often causes conventional political leaders to squirm with his outspoken attacks, but it’s a pity past presidents hadn’t been so forthright. Germany’s reliance on Russia collapsed spectacularly following the invasion of Ukraine.
Europe relies on renewables for 15% of its primary energy, more than double the rest of the world which is at 7%. It’s an unappealing example to follow given their moribund economies.
In negotiating long term LNG import agreements, European policymakers have clung to the notion that their energy systems will be free of hydrocarbons. So they’ve often balked at the 20+ year deals LNG exporters need to justify their fixed investments in liquefaction terminals.
Meanwhile, incoming President Trump who is our de facto president already, just said,”I told the European Union that they must make up their tremendous deficit with the United States by the large scale purchase of our oil and gas. Otherwise, it is TARIFFS all the way!!!”
This followed the US Department of Energy’s (DoE) report on the advisability of increased US LNG exports, which it warned would raise domestic prices by 30% over 25 years. It’s a ridiculous forecast, because with natural gas at $3 per Million BTUs versus $12 in Europe and Asia, a $1 increase is inconsequential and a 25 year price forecast is useless. We waited 11 months since the permit pause in January for a weak political document that is the parting gift of Energy Secretary Jennifer Granholm.
There are reports that she sought to ban LNG exports entirely. The only plausible explanation is that she’s taking a stand that will cheer left wing progressives when she runs for public office* again one day. It’s similar to NJ governor Phil Murphy and his pursuit of offshore wind that is widely opposed by the NJ residents who live on the Atlantic coast where the turbines will be situated.
For America, Jennifer Granholm’s retirement can’t come quickly enough.
Some have speculated that opponents of increased US LNG exports could rely on the DoE to persuade the courts to block increased exports. It’s more likely that incoming DoE head Chris Wright will correctly consign the report to the dustbin and focus on what’s in our national interest.
It’s hard to think of a set of circumstances more likely to favor the energy sector at the expense of others. The US is threatening most of our trade partners with tariffs unless they (1) impede illegal immigrants entering from their country, which applies to Canada and Mexico, or (2) buy more American goods, which for the incoming administration means US oil and gas.
According to the US Bureau of Economic Analysis, shipments of crude oil, natural gas liquids, natural gas, fuel oil and other petroleum products were $262BN for the year through October, 15% of all our exports. Pharmaceutical preparations ($90BN) is the next biggest category, followed by civilian aircraft and engines ($80BN).
Europe wants to avoid tariffs and is pursuing green policies that are impeding their economy. At the same time they are reliant on US natural gas, and we have a president who wants them to buy more, which will provide them with reliable, secure energy and maybe even arrest Germany’s industrial decline.
It looks like a good time to be invested in US energy.
*An earlier version of this blog post suggested Jennifer Granholm might decide to run for US president one day. Thank you to a regular and diligent reader who noted that as a Canadian citizen she is ineligible.
We have two have funds that seek to profit from this environment: