Here’s a crazy thought: Imagine that exports of American energy began flowing to importing countries in the Middle East, and that those countries were growing increasingly dependent on US exports.
Since March of this year, that is exactly what has been happening.
Amid all the election tumult, the United States quietly began exporting natural gas to the Middle East.
Two cargoes of shale gas liquefied at Cheniere Energy’s Sabine Pass terminal in Louisiana were exported to Kuwait. A third went to the United Arab Emirates. Jordan imported two more.
This ought to sound odd to the average American.
Kuwait and the UAE are two of the most petroleum rich countries on earth, with a combined 12% of global oil and 4% of global gas reserves.
The usual narrative suggests that America is dependent on the Middle East for energy, not the other way around. President-elect Trump is even suggesting we reduce our dependence by halting imports from Saudi Arabia.
Why would Kuwait and UAE need American gas? They sit in a region that holds more than 40% of global gas. Iran alone owns 18% of known reserves. Qatar has 13%.
And, just 90 miles from Kuwait City, Iraq flares off 700 million cubic feet per day of associated gas from its southern oilfields. Estimates put the value of the wasted gas at $1.8 billion per year.
How on earth is it possible that these two countries are importing shale gas all the way from America?
Is it a political deal? Maybe a “thank you” for the security the US Navy provides their oil shipments?
Even though Kuwait and the UAE each hold more than 100 years of gas reserves at current rates of production, they are genuinely short on natural gas.
The root cause is government subsidies that fix domestic natural gas prices at very low levels – less than $2 per million BTUs. At those prices, demand for gas is rampant. So is demand for electricity, which is also subsidized.
But with prices fixed at a dollar or two, nobody wants to invest in natural gas production. There is no money in it.
As it happens, non-associated gas reserves in Kuwait and the UAE are challenging. The gas is either tight or ultra-deep, or sour – laced with deadly hydrogen sulfide. That makes it expensive.
The UAE has seen ConocoPhillips drop out of one sour gas production contract. It had to use creative incentives to entice Occidental to take over.
Kuwait and the UAE have also been frustrated in their attempts to import gas from their neighbors. Some of this is politics. Neither country has good relations with Iran. A gas pipeline crossing the Gulf from Iran to the UAE sits unused because the two countries cannot agree on a price.
Kuwait and Iraq are not on speaking terms. And Kuwait’s attempt to import gas from Qatar has been blocked by Saudi Arabia, which refused permission for a pipeline to cross its territorial waters.
Meanwhile, in America, high gas prices led clever entrepreneurs to figure out a way to coax gas from reserves considered too costly and difficult to develop. Now American gas is cheap.
The LNG import terminals we built are now being retrofitted for export. With an increasingly liquid spot market for LNG, US shale gas now flows to South America, Asia, Europe, and – when prices are right – to the Middle East.
In 2010, I attended a presentation in Dubai on shale gas from a US Department of Energy official. In the audience, Emirati men in traditional white robes and headscarves listened with rapt attention. One of the men raised his hand. “I’ve got two questions,” he said. “Is America planning on exporting any shale gas? If so, can we get some?”
At the time, I thought it unlikely. Now it has come to pass.
These diverging fortunes are a powerful illustration of the perils of fixing energy prices. Gulf regimes sought competitive advantage for their industry and cheap electricity for their people.
What they got were market distortions that, by 2008, turned Kuwait and the UAE in to net importers of natural gas.
Meanwhile American oil imports from the region have reached longtime lows.
Nevertheless, the US Navy’s Fifth Fleet – based in Bahrain – cruises the Persian Gulf and protects energy shipments flowing out of the Strait of Hormuz.
But since March, the Navy has taken on a new duty.
American sailors and ships are also protecting shipments of American energy flowing into the Persian Gulf. Energy dependence is getting interesting.