The Biden administration announced on Friday, January 26, 2024, that it will temporarily pause the approval of new liquefied natural gas (LNG) export facilities to non-free trade agreement (FTA) countries, pending a comprehensive review of the economic, environmental and security implications of the rapidly growing US LNG industry. The decision has sparked mixed reactions from various stakeholders, ranging from praise from climate activists to criticism from gas producers and some foreign allies.
What is LNG and why is it important?
LNG is natural gas that has been cooled to -260°F (-162°C), turning it into a clear, odorless and non-corrosive liquid that can be easily transported by tankers across long distances. LNG takes up about 1/600th the volume of natural gas in its gaseous state, making it more efficient and economical to store and ship. LNG can be regasified at import terminals and injected into pipelines for domestic consumption or industrial use.
LNG is considered a cleaner burning fossil fuel than coal or oil, as it emits less carbon dioxide (CO2) and other greenhouse gases (GHGs) per unit of energy produced. However, LNG is not without environmental drawbacks, as it also involves significant emissions of methane, a potent GHG, during its production, processing, transportation and regasification stages. Moreover, LNG still contributes to global warming by adding CO2 to the atmosphere, albeit at a lower rate than other fossil fuels.
The US is currently the world’s largest producer and exporter of natural gas, thanks to the shale gas revolution that has unlocked vast reserves of unconventional gas through hydraulic fracturing (fracking) and horizontal drilling technologies. According to the US Energy Information Administration (EIA), the US produced about 34 trillion cubic feet (Tcf) of natural gas in 2023, of which about 12 Tcf were exported as LNG. The US has 11 operating LNG export terminals with a combined capacity of 10.8 billion cubic feet per day (Bcf/d), and another 15 projects under construction or approved with a total capacity of 21.6 Bcf/d. The US also has 28 pending applications for LNG export authorizations to non-FTA countries, with a cumulative capacity of 37.4 Bcf/d.
The main markets for US LNG are Europe and Asia, where natural gas prices are typically higher than in North America due to lower domestic production and higher demand. Europe is especially reliant on natural gas imports for its energy security, as it faces declining domestic output and geopolitical uncertainties from its main suppliers, Russia and Norway. Asia is also a major consumer of natural gas, driven by its growing population, economic development and environmental policies. China, Japan, South Korea and India are among the top importers of LNG in the world.
Why did the Biden administration decide to pause new LNG exports?
The Biden administration cited several reasons for its decision to pause new LNG export approvals until the Department of Energy (DOE) can update its analyses for authorizations, which are based on data from 2018. These reasons include:
- The need to assess the impact of LNG exports on domestic energy costs, especially for low income households and manufacturers that rely on natural gas as a fuel or feedstock.
- The need to evaluate the effect of LNG exports on US energy security, especially in light of recent supply disruptions caused by extreme weather events such as hurricanes and winter storms.
- The need to account for the latest scientific evidence on the GHG emissions and climate impacts of LNG exports, including the lifecycle emissions of methane from production to consumption.
- The need to protect the health and well being of frontline communities in the US that bear the brunt of pollution from new LNG export facilities.
The Biden administration also emphasized that the pause will not affect existing or authorized LNG exports, nor will it impact its ability to supply its allies in Europe, Asia or elsewhere with LNG. The administration stated that it remains committed to supporting its partners in their energy transition and diversification efforts, while also leading by example in tackling the climate crisis.
What are the potential consequences of this policy shift?
The announcement of the pause on new LNG export approvals has generated diverse reactions from different stakeholders, reflecting their varying interests and perspectives on the issue. Some of the possible consequences are:
- A boost for climate action: Many environmental groups and climate advocates welcomed the decision as a positive step towards reducing US GHG emissions and aligning its energy policy with its climate goals. They argued that LNG exports are incompatible with limiting global warming to 1.5°C above pre-industrial levels, as agreed in the Paris Agreement, and that the US should instead invest in renewable energy and energy efficiency to meet its domestic and international needs. They also called for a permanent ban on new LNG exports and a phase out of existing ones.
- A blow for gas industry: Many gas producers and exporters expressed disappointment and frustration with the decision, claiming that it will harm their competitiveness, profitability and growth prospects. They argued that LNG exports are beneficial for the US economy, creating jobs, revenues and trade surpluses. They also contended that LNG exports are beneficial for the global environment, displacing more carbon intensive fuels such as coal and oil in other countries. They urged the administration to resume the approval process as soon as possible and to consider the positive impacts of LNG exports on US interests and values.
- A mixed bag for foreign allies: Some foreign allies of the US, especially in Europe, expressed concern and dismay over the decision, fearing that it will undermine their energy security and diversification efforts. They argued that US LNG exports are a reliable and affordable source of natural gas for them, reducing their dependence on Russia and other suppliers. They also stressed that US LNG exports are compatible with their climate ambitions, as they are using natural gas as a bridge fuel to transition to a low carbon economy. They appealed to the administration to reconsider its decision and to maintain its support for their energy needs. Other foreign allies of the US, especially in Asia, expressed understanding and support for the decision, acknowledging that it is driven by legitimate domestic and global concerns. They argued that US LNG exports are not a critical factor for their energy security and diversification efforts, as they have access to other sources of natural gas from Australia, Qatar, Canada and others. They also emphasized that they share the US vision of a clean energy future, and that they are willing to cooperate with the US on advancing renewable energy and energy efficiency solutions.
The Biden administration’s decision to halt new LNG export approvals is a significant policy shift that reflects its commitment to addressing the climate crisis and its implications for the US and the world. The decision has sparked a lively debate among various stakeholders, highlighting the complex trade offs and challenges involved in balancing economic, environmental and security interests in the global energy landscape. The outcome of the DOE review will determine the future direction and magnitude of US LNG exports, as well as their impacts on domestic and international affairs.