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US eyes status as global gas player as White House plays hardball on trade

As the U.S. ramps up export capacity on its way to becoming a global gas giant, energy experts are cautioning that a push from the White House to redo international trade deals could undermine the Trump administration's promotion of American LNG.

Trade pacts that include key markets for U.S. LNG have come under fire as President Donald Trump calls for more "fair and reciprocal" trade. While the Trump administration has plugged U.S. LNG in meetings with leaders from Japan, Korea, India and most recently Morocco, its criticism of trade deals creates uncertainty for potential LNG buyers, said David Goldwyn, a former U.S. Department of State special envoy and president of the energy consulting company Goldwyn Global Strategies.

"The calling card for U.S. LNG was that it's low political risk," Goldwyn said. "Well, now that all these trade agreements have been put into question and energy has become so politicized, they're eroding that political advantage."

A year after Trump signed an executive order withdrawing America from the 12-nation Trans-Pacific Partnership, the other 11 countries may be moving on without the U.S. Negotiations are underway on the U.S.-Korea Free Trade Agreement, and an overhaul of the North American Free Trade Agreement is still up in the air as trade representatives from the U.S., Canada and Mexico work to come up with a way to meet Trump's calls for a "modernized" deal.

Japan is the world's largest LNG importer, and since the shale gas revolution turned the U.S. into a net natural gas exporter, Mexico and South Korea have been among the top homes for the American fuel.

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Since the only major LNG export terminal in the U.S., Cheniere Energy Inc.'s Sabine Pass, made its first shipment in February 2016, the facility has exported more than 800 Bcf of LNG, according to the most recent data available from the U.S. Department of Energy. Dominion Energy Inc.'s Cove Point terminal in Maryland is set to enter service in early March, and four other projects are expected to come online by the end of 2019. All told, the six projects represent more than $55 billion of investment.

For those projects, free trade agreements are less important. They all have approval from the Energy Department to export to countries both with and without free trade agreements in place. But for the dozen or so ventures still working their way through the permitting process, a shrinking list of free trade agreement countries could prove a competitive disadvantage for U.S. LNG, Goldwyn said.

A handful of U.S. lawmakers have sought to address that problem, introducing bills that would get rid of the distinction between free-trade-agreement and non-free-trade-agreement countries when concerning LNG exports. While those proposed laws may have better luck in the current political environment than they did in the past, Goldwyn said they will still have trouble making it through the U.S. Senate.

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The bigger issue for U.S. LNG in the face of fewer free trade agreement countries may occur on a more macro level, said Nikos Tsafos, an LNG consultant and co-founder of the research firm Enalytica who writes often about energy policy and the geopolitics of natural gas.

"The most logical outcome is that you end up with a more restrictive trading regime — goods don't flow as freely, capital isn't as mobile, investment isn't as welcome," he said. "Existing trade routes may or may not be disrupted — depending on how far things escalate."

The Trump administration is unlikely to dispute the assumption that LNG exports are considered in the public interest, a determination the Energy Department uses when approving exports to countries that do not have free trade agreements. But, Tsafos said, "recipient countries could conclude that the United States is no longer a trusted partner, and they might want to rely less on the United States for their gas; or maybe investing in the United States is riskier than before."

The Trump administration's trade push could also work in favor of the LNG industry. As the president and other officials promote American exports to help shrink other countries' trade deficit with the U.S., world leaders might be convinced that "if we buy some of its gas, or invest some money in America, Trump will give us a break and go pick on some other country," Tsafos said.

Overall, Tsafos said, it is likely too early to tell how Trump's trade policy will impact U.S. LNG. "If we're being intellectually honest, there are so many possible outcomes," he said.