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Special Bulletin
A Japanese Perspective on the International Energy Landscape (322)

May 8, 2017

Participation in CSIS/IEA-sponsored Natural Gas Workshop
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn May 5, the U.S. Center for Strategic and International Studies and the International
Energy Agency sponsored a workshop titled “The Strategic Role of Natural Gas” at the CSIS
headquarters in Washington. Some 70 energy policy and industry stakeholders and experts mainly
from the United States participated in the workshop, having vigorous discussions in three sessions
titled “The Role of Natural Gas in North America,” “The Role of U.S. Gas in the Global Market”
and “The Strategic Role of Natural Gas” under the Chatham House Rule. I had an opportunity totake part in the third session as panelist. In the following, I would like to summarize impressive
points at the workshop.
First, workshop participants focused on the strategic role of natural gas, particularlyliquefied natural gas, as indicated by the title. U.S. natural gas production has expanded at a once
unimaginable speed and in a larger-than-expected scale on progress in the shale revolution and isexpected to sustain further growth. As a result, the United States has become the only country where
the IEA-touted “Golden age of gas” has been realized. Substantial supply growth has helped
stabilize gas prices at low levels, exerting wide, deep influences on the energy market and economy,
and external energy policy in the United States.
Gas has taken advantage of its reduced prices to increase its market competitiveness in theUnited States, obtaining the largest share of the power mix in place of coal in 2016. The gas pricefall and a subsequent drop in power costs have lowered U.S. energy costs as a whole, producing
wide, positive effects on the U.S. economy. The petrochemical industry has exploited lowered gas
prices to invigorate its production and investment, with the shale gas (and oil) industry prospering,making great contributions to the U.S. economy and employment. Based on lowered gas prices,many projects have been launched to export LNG using facilities that had been constructed on anassumption that the United States would have to import LNG. The United States is now about tobecome one of the leading LNG exporters in the world.
LNG (and pipeline gas) exports and a substantial drop in oil imports under the shale
revolution can help reduce the U.S. trade deficit. By becoming one of the leading LNG exporters inthe world and expanding shale oil production substantially, the United States has contributed toeasing the supply-demand balance in international natural gas, LNG and oil markets and checking
competing gas, LNG and oil suppliers. As a new gas supplier, the United States has increased its
strategic presence for many major gas importing countries. It is now considering a foreign policy
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strategy taking into account the strategic significance and value of energy exports. In addition, gas’s
large-scale continuous replacement of coal has been coupled with renewable energy expansion tocontribute to reducing U.S. carbon dioxide emissions. Indeed, growth in shale and other gas
production has contributed to increasing U.S. national power in various areas. Discussions at theworkshop reminded me of the strategic significance of natural gas in the United States.
Second, I would like to point out that the next matter of concern is how the Trumpadministration would face natural gas production and exports having strategic value, what policies itwould develop on gas and what impacts the policies would have. Almost undoubtedly, the Trumpadministration is destined to give priority to fossil fuels, particularly to expanding production andexports of shale and other oil and gas. The destination has been indicated by policies put forward byexecutive orders. However, specific points or details of the policies have not been clarified.
Furthermore, it is difficult to predict how the policy slogan of “America First” would influenceenergy trade and export policies.
Basically, the Trump administration is expected to recognize the strategic significance ofLNG and other energy exports and promote the expansion of oil and natural gas production andexports. If U.S. domestic energy prices increase amid the expansion of exports, however, attention
will be paid to how such event would affect policy decisions, as suggested by discussions at theworkshop. While U.S. LNG exports feature the advantage of more flexible supply than traditional orconventional LNG exports, they are not necessarily price competitive under the current natural gasand LNG price conditions in the world. Strategic moves of other major natural gas and LNG
exporters such as Qatar and Russia conscious of the presence of U.S. LNG exports are of great
importance. These points should be fully recognized, as suggested by discussions at the workshop.
Third, workshop participants made interesting arguments from various angles on the rolethat natural gas and LNG should and could play in Asian and European markets where the “Goldenage of gas” seen in the United States has not been realized. Natural gas that emits less carbon
dioxide than other fossil fuels and little sulfur and nitrogen oxides is expected to play a key role infuture low-carbon and air pollution prevention initiatives. In Asia where energy and electricity
demand continues high growth, natural gas featuring stable supply is expected to play a great role in
reducing the dependence on coal and diversifying energy sources.
Nevertheless, natural gas has price competitiveness problems particularly in the power
generation sector, facing fierce competition from coal, renewable energy and nuclear energy thathave their respective advantages in Asia. Under such situation, some workshop participants argued
that natural gas and LNG should enhance their price competitiveness and further improve their
supply flexibility to increase their overall attractiveness and competitiveness in order to play theexpected role. Others argued that it is very important to expand and explore gas demand in theindustry sector, the buildings sector and the transport sector including ships, as well as in the power
generation sector featuring fierce competition. While there is no perfect energy source, natural gasand LNG have clear advantages as well as some problems. Policy and industry stakeholders will be
required to be conscious of the strategic significance of natural gas and LNG and overcome these2

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problems to allow natural gas and LNG to play a greater role in the Asian energy mix.

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