America's emergence as an energy powerhouse gives it a key lever in global trade talks
The rise of the United States as the world's top oil and gas producer and now growing exporter puts energy at the center of U.S. trade negotiations — as a lever and a potential source of friction.
The International Energy Agency said Monday the U.S. should surpass Russia as an oil exporter in three years and challenge Saudi Arabia for the top spot within five as U.S. oil output continues to grow.
That, together with the expected growth in U.S. exports of liquefied natural gas, is expected to turn the United States into the world's biggest exporter of energy.
Increased sales of U.S. energy are a significant part of trade negotiations between Beijing and Washington. Since the United States resumed oil exports in early 2016, China has been a major importer of U.S. oil and at times, has been the largest. China also imports U.S. LNG and is expected to increase its purchases even more.
"It's a big positive in U.S. trade talks with China. Until matters are resolved, it's a source of friction. it's also part of the equation in the European gas market," said Dan Yergin, IHS Markit vice chairman.
The growth in U.S. exports and rising clout in the global energy market was a topic of discussions in many of the meeting rooms at the IHS Markit annual CERAWeek conference in Houston.
Energy Secretary Rick Perry, in an interview with CNBC, acknowledged the growth in U.S. production is a lever in trade, though he is not personally involved in trade negotiations.
"It's part of the mix. It may not be the driver, but it's always hanging out there as part of the matrix, if you will," he said.
Perry said the whole range of U.S. energy, including nuclear, has made the U.S. a powerhouse. "All of it plays a role. America is the leader in the energy sector, not just fossil fuels, he said.
Cheniere Energy CEO Jack Fusco said he sees a huge demand for LNG from China, enough to ultimately double his company's size. But he told CNBC he also would hope to see a trade deal soon, to end the "rhetoric."
Cheniere pioneered exports of LNG from the Lower 48 states and says it has sent 60 tankers to China from its Sabine Pass facility on the Gulf Coast. LNG is a super-chilled form of gas, which in liquid form can be shipped around the world.
"At the lower levels, we don't see much change. There's two willing counter parties willing to talk about terms and the transaction. At the upper levels though, there's some tension," he said, adding that he expects relations to be "rocky" and "lumpy" with the Chinese until the trade situation is resolved. "And we're just going to have to be patient."
But Fusco also remains optimistic.
"They need us. We need them. We're hoping some of this rhetoric dies down," said Fusco.
Trade experts see Europe as the next front in the Trump administration's efforts to make trade more fair for American companies.
President Donald Trump has complained to Germany about the Nord Stream 2 Pipeline project to bring Russian gas under the Baltic Sea to Germany. Europe currently gets about 40 percent of its gas from Russia.
"From our perspective, Europe by and large would much rather be buying gas from the U.S.," said Mike Sommers, president and CEO of the American Petroleum Institute. Sommers pointed to countries like Lithuania as among those that prefer not to be dependent on Russia.
But Germany has not stopped the pipeline construction and has said it should improve its energy security.
The Wall Street Journal reported that the Trump administration is preparing to enact sanctions against the pipeline. The president reportedly sees the pipeline from Russia as a threat, particularly since the U.S. protects Europe militarily.
The pipeline is funded by Russia's PAO Gazprom and several Western firms,
"Russian gas is going to come to Europe no matter what pipeline it goes through," said Yergin. He said there will still be a need for U.S. LNG in Europe.
Sommers said the growth of the U.S. as an energy producer, now pumping 12.1 million barrels a day, also has given it more flexibility in sanctioning countries that export oil.
Both Iran and Venezuela are under U.S. sanctions but the oil market has not felt much impact due to increasing U.S. output.
Trade issues could play into other decisions the U.S. has to make in the energy arena. For instance, the U.S. granted waivers to some buyers of Iranian crude. In May, the Trump administration will have to decide whether countries like China and India are allowed to continue buying Iranian oil.
"We are as secure in this county as we've ever been," said Perry. "So the United States with this shale boom — with this revolution that's occurred in this country, and I might add with the development and the growth we're seeing in our renewables and the nuclear side of things — all this says to the United States is you don't have to worry about being held hostage by any country in the world with any type of fuel. You can do it yourself right here."
Perry said the same message can be sent to allies who can now see the U.S. as providing energy so they don't have to be "held hostage by someone else out there."
Fatih Birol, executive director of the International Energy Agency, said the rise of U.S. oil and gas is positive for consuming countries. In the LNG market, for instance, he said, only eight countries had been buying LNG and now there are nearly 50 because they see supply coming from the U.S., as well as Australia and Qatar.
He also said the U.S. initially found the bounty of recently discovered gas and oil for domestic use.
"The second phase of the shale revolutions, starting now, is going to see the U.S. emerging as a major energy exporting country," said Birol. In five years, he expects that 75 percent of world LNG exports will come from the U.S.