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08.07.2014.

How the EU can benefit from the American shale gas revolution


The US shale revolution has caused a large increase in US natural gas production and a sharp decrease in its natural gas price. 
 
This has significant economic and environmental effects for the EU. The EU natural gas price is now approximately 2.5 times as high as its US counterpart, and this has caused a cost competitiveness gap for energy-intensive manufacturing industry. 
 
The European Commission estimates that many energy-intensive manufacturing firms, particularly in the chemical industry, are opting to expand their business in the US, and choosing to shift operations from the EU to the US. Additionally, the cheap natural gas price has led US coal exports to the EU to almost double since 2009, hurting the European Commission’s CO2 reduction goals.
 
This paper argues that the EU can mitigate, and even benefit from the US shale revolution by making greater US natural gas exports a provision in the TTIP (Transatlantic Trade and Investment Partnership) negotiations. By arguing for ‘Free-trade agreement’ (FTA) status, under the US’ 1938 Natural Gas Act, US natural gas exporters avoid an arduous export authorization application process, allowing for easier and increased US exports of LNG to Europe. 
 
Although increased US exports of natural gas in general are more likely to flow to Japan due to higher export margins, this is still in the EU’s interest, as this would:
1. Lower EU, and raise US gas prices, improving the EU’s industrial manufacturing cost competitiveness.
2. Reduce US coal exports to the EU, which aids CO2 reduction goals.
3. Open up new natural gas trading partners for the EU to reduce reliance on Russian gas.
 

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