- US temporarily halts LNG export permits to non-Free Trade countries for climate impact review by Department of Energy.
- Gulf Coast LNG projects face potential delays or cancellations, impacting global natural gas supply, demand, and prices.
- Canada, Australia, and Qatar stand to gain market share and revenue as they could fill the void left by the US in LNG exports.
- The pause aligns with the Biden administration’s climate goals, emphasizing a commitment to reduce greenhouse gas emissions, particularly methane from fossil fuels.
LNG is short for liquefied natural gas and occurs when gas is cooled to about –260° F (–162° C), changing it into a liquid that can be stored and shipped safely aboard specially designed vessels to destinations around the globe. Upon arrival, the gas is reheated to return it to a gaseous state and transported by pipeline to distribution companies, industrial consumers, and power plants.
LNG is a significant source of energy for many countries, especially in Europe and Asia, where domestic production is not enough to meet demand. LNG is also a cleaner alternative to coal and oil, as it emits less carbon dioxide when burned. However, LNG also has environmental drawbacks, such as methane leakage during production, transportation, and consumption, which can partially negate its climate benefits. Methane is a greenhouse gas that is 84 times more potent than carbon dioxide over a 20-year period.
Export Permit Pause
The decision by President Joe Biden, announced on January 26, 2024, aligns the Democratic president with environmentalists who fear the huge increase in exports of LNG is locking in potentially catastrophic planet warming emissions. Biden has pledged to cut climate pollution in half by 2030. Industry groups and Republicans condemned the pause as a “win for Russia,” while environmentalists cheered it as a way to address climate change, and counter Biden’s approval of the huge Willow oil project in Alaska last year.
The decision is complicated because Biden has praised U.S. exports in the past. But he has faced strong criticism from environmental groups who worry about the rapid expansion of LNG exports in recent years, and question Biden’s commitment to phasing out fossil fuels such as oil and gas. U.S. oil production has surged since Biden took office. U.S. LNG capacity has doubled in recent years, and is set to double again under projects already approved. Current methods used by the Energy Department to evaluate LNG projects don’t adequately account for potential cost hikes for American consumers and manufacturers, or the impact of greenhouse gas emissions, officials said.
“There’s a long runway here (for LNG projects) and we’re taking a step back and thinking, okay, let’s take a hard look before that runway continues to build out,” said White House climate adviser Ali Zaidi.
The permit hiatus, which is subject to exception for unanticipated and immediate national security emergencies, will provide the time to integrate these critical considerations. The U.S. is already the number one exporter of LNG worldwide – with U.S. LNG exports expected to double by the end of this decade. At the same time, the U.S. remains unwavering in our commitment to supporting our allies around the world. Today’s announcement will not impact our ability to continue supplying LNG to our allies in the near-term.
Global Supply, Demand and Prices
An extended freeze will have significant implications for the global natural gas market, which has been experiencing high demand and tight supply due to cold weather, low inventories, and geopolitical tensions. The US exported about 11 billion cubic feet per day (Bcf/d) of LNG in 2023, accounting for about 22% of global LNG trade. The US has also been a major supplier of LNG to Europe and Asia, where prices have soared amid Russia’s invasion of Ukraine and China’s energy crisis.
The US decision could cause delays or cancellations of several LNG projects along the Gulf of Mexico coast that are awaiting approval, affecting the supply, demand, and prices of natural gas worldwide. According to Reuters, there are 16 pending applications for LNG export terminals with a combined capacity of 21 Bcf/d – nearly double the current US LNG export capacity. Some of these projects have already secured contracts with buyers and investors, and could face substantial financial losses or legal challenges if they are not approved in time.
The pause may also affect the US domestic natural gas market, as LNG exports have been a key driver of demand and prices for US gas producers. The US Henry Hub benchmark price averaged $4.50 per million British thermal units (MMBtu) in 2023, up from $2.03 per MMBtu in 2020, partly due to increased LNG exports. The interruption could reduce the demand and prices for US gas, which could hurt the profitability and investment of US gas producers.
Opportunities for Other Countries
This break in permit approvals could benefit other LNG exporters, such as Canada, Australia, and Qatar, who could fill the gap left by the US and gain more market share and revenue. Canada, which shares a border and pipeline network with the US, could take advantage of its proximity and lower transportation costs to export more LNG to Asia, where prices are higher than in North America. Canada has one operating LNG export terminal, LNG Canada, with a capacity of 1.8 Bcf/d, and several more under construction or planned.
Australia, which is the second-largest LNG exporter after the US, could also increase its LNG exports to Asia, especially to China, which is its largest customer. Australia has 10 operating LNG export terminals with a combined capacity of 11.4 Bcf/d, and one more under construction. Australia has also been pursuing a net-zero emissions target by 2050, and has been investing in renewable energy and hydrogen projects to reduce its reliance on fossil fuels.
Qatar, which is the third-largest LNG exporter after the US and Australia, could also boost its LNG exports to Europe and Asia, where it has long-term contracts and established relationships with buyers. Qatar has 14 operating LNG export terminals with a combined capacity of 10.4 Bcf/d, and plans to expand its capacity to 16 Bcf/d by 2027. Qatar has also been diversifying its economy and strengthening its ties with regional allies such as Turkey and Iran.
The American pause on LNG permits is a significant decision that reflects the Biden administration’s commitment to address climate change and reduce greenhouse gas emissions from fossil fuels, especially methane. The decision will have major, and cascading impacts on the global natural gas market, affecting the supply, demand, and prices of natural gas worldwide. A lengthy recess in permit approvals will affect workers negatively in the US, while creating jobs in other LNG exporting countries.