The Problem with the Pause: US LNG Trade Gets Political

President Joe Biden’s pause on new LNG export certifications is not the victory against carbon emissions environmentalists think it is, said Nick Dell’Osso, president and CEO of Chesapeake Energy.

“When we think about putting a restriction on permitting on LNG export in the United States, that doesn’t mean that gas or other hydrocarbons won’t show up to fill the energy needs that would otherwise come from the U.S., where we have good environmental controls,” Dell’Osso said at NAPE’s Energy Business Conference in February.

“Those energy needs will be met. Human beings will find access to energy as and where they can afford it.”

A great deal of commentary on Biden’s decision filled the corridors of NAPE in Houston. Two congressional hearings were held on the subject and many energy executives had a chance to criticize the decision at the conference, two weeks after the decision was formally announced.

White House moves on LNG

Biden formally paused approvals for new LNG export projects late January, in a move that put the brakes on billions of dollars in development for energy companies.

The major move is a key win for environmentalists—and a huge source of frustration for natural gas players—as Biden agreed to have the Department of Energy factor in impacts on climate change onto LNG permitting. The decision plays into the election year with ripple effects lasting beyond 2024.

“During this period, we will take a hard look at the impacts of LNG exports on energy costs, America’s energy security and our environment,” Biden said in a statement. “This pause on new LNG approvals sees the climate crisis for what it is: the existential threat of our time.”

The order calls for an assessment of LNG export deals with countries that do not have a free-trade agreement with the U.S., as countries with an agreement are already approved by current law. However, the order effectively impacts all LNG export projects that have not yet received approval. LNG is a worldwide commodity frequently sold to countries without free-trade agreements with the U.S., and LNG supplier-to-customer contracts are generally written at 20-year lengths.

DOE public interest analysis

It’s not outrageous that the DOE is updating its guidelines, said Tom Sharp, director of permitting intelligence for Arbo, a firm that specializes in regulatory issues for energy infrastructure.

“Given how much has changed since the last time DOE took a hard look at their public interest analysis, it is not surprising they are revisiting it again,” Sharp said. “Climate change during an election year certainly plays a role,” but there are also considerations about national security, the impact on the domestic market and the role of gas in replacing coal.

The decision for a pause, however, was criticized as short-sighted by many in the industry.

“If we want to study, make additional studies, great, but let’s not make decisions until those studies have come out,” said Brigham McCown, senior fellow at the Hudson Institute, at a House subcommittee hearing on the decision.

The DOE’s plan specifically calls for an initiation process to update assessments to decide if new LNG export authorization requests to non-Free Trade Agreement countries fit within the scope of the “public interest.”

“[The] DOE must use the most complete, updated and robust analysis possible on market, economic, national security, environmental considerations, including current authorized exports compared to domestic supply, energy security, greenhouse gas emissions including carbon dioxide and methane, and other factors,” the department said.

“Today’s action will begin an update of this analysis, and until updated, DOE will pause determinations on pending applications for export of LNG to non-Free Trade Agreement countries,” the DOE said.

The U.S. has comprehensive free trade agreements with 20 countries, with the larger ones being Australia, Canada, Korea, Mexico and Singapore.

Missing from that list is Europe, which relied heavily on Russian energy imports, and which has been the main recipient of U.S. LNG imports in recent years. Over 60% of U.S. LNG exports went to Europe in 2023, according to the DOE. Also largely absent from the list under the Asia umbrella are China, India and other key Asian markets interested in importing LNG.

Appearing on CNBC, Energy Secretary Jennifer Granholm said the analysis would be done via U.S. National Laboratories and also would consider foreign policy and the energy security of allies.

Since making the decision, Granholm and other supporters have emphasized the order is a “temporary pause,” followed by a comment period. Analysts predicted the pause would last at least until the November elections.

Sharp noted that the DOE has a difficult time ahead of it, if the agency plans for climate change impact assessments on individual plants.

“The impacts to climate change are global in nature,” Sharp said. “The question is, where do you draw the line? At what point are the climate change impacts from a single proposed project significant enough to warrant not approving it? This is an exceedingly difficult question for the government to answer, given that arguably all additive emissions that contribute to climate change are significant.” 

Mixed internal opinions

Sen. Joe Manchin, (D-W.Va.), who’s flirting with leaving the Democratic Party for a third-party presidential bid, held a hearing for the Senate Committee on Energy and Natural Resources to examine the decision.

“The White House has gone out of its way to signal that the pause is a political ploy intended to get votes in an election year—it’s all about politics, not economics and not based in facts,” Manchin said during the hearing. “Between the two statements issued by the White House announcing the pause, climate and environmental issues are mentioned more than 35 times. All combined, consumer costs, energy security and helping our allies are mentioned less than half as much.”

Democratic supporters of the pause said it’s a necessary procedure given the massive growth of LNG exports.

“If the Biden administration is trying to ban LNG exports, they’re not doing a very good job, and that is because this is not a ban or a de facto ban either,” said Rep. Paul Tonko (D-N.Y.). “It’s an acknowledgement that export approvals have grown tremendously in recent years, meaning an increasing share of total U.S. production is being earmarked for export. I believe the responsible force of action is to take a breath and see if additional exports would continue to be in the public interest.”

Filling Russian energy voids

The DOE’s announcement came as U.S. LNG exporters were eying further growth in years ahead after arguably helping to settle three years of energy market volatility that spanned from the start of the COVID-19 pandemic in 2020 through the aftermath of the Russian invasion of Ukraine in early 2022.

These events forced world leaders to rethink and prioritize energy security, even if that meant delaying decarbonization goals, as was the case in Germany and other countries that turned to coal.

Ongoing heightened uncertainties continue to favor U.S. LNG exporters and boosted interest in the build-out of U.S.-based liquefaction facilities, as well as gasification facilities around the world.

The U.S. currently exports roughly around 14 Bcf/d of LNG, according to the DOE. The U.S. also exports another 5 Bcf/d to 6 Bcf/d of piped natural gas to Mexico; a number of Mexican-based liquefaction facilities will use U.S. gas to anchor a boom in that country’s LNG exports.

To date, approximately 48 Bcf/d in total authorizations for LNG exports have been approved by the DOE, which is around 3.4 times the current export capacity, the DOE said, reiterating that the temporary pause on pending applications doesn’t affect exports that have already been authorized.

“Within this decade, another 12 Bcf/d of U.S. export capacity already authorized and under construction will come online—enabling exports to nearly double and putting the U.S. on track to exceed the export capacity of any other country by more than 50%, even taking into account planned global LNG expansion capacity,” the DOE said.

Granholm said the pause would not affect projects that have already gained government approval. One project that would be affected is Venture Global’s Calcasieu Pass 2 LNG project, which was slated to begin production in 2025, and would be the largest LNG export facility in the U.S.

Effects on LNG market

Analysts predicted the move would have not have an immediate effect on the LNG market.

“In the short term for facilities coming online 2024 through ’26, there is no impact,” said Jack Weixel, senior director of East Daley Analytics. “They’re either under construction or already have the requisite DOE approval.” 

Securities firm TD Cowen did not see an immediate boost happening for LNG facilities that are already operational.

“LNG equities currently operating may not see an increase in replacement value given forecast oversupply through 2028 and global queue of proposed projects; unsanctioned projects with government approvals could benefit as FID probability increases,” the firm reported in an analysis.

The decision could affect, however, the overall growth environment for LNG exports, Weixel said. The pause essentially announced that natural gas supply is further subjected to U.S. political processes.

Industry and environmentalists respond

“This is a signal that is going to chill investments,” Toby Rice, CEO of EQT, told the House subcommittee. “I was in Europe last week, and we have to have many conversations to reassure our allies that they will be able to depend on America to deliver the energy security that they’ve relied on in the past.”

Alternatively, environmentalists praised the announcement as a major win against climate change and for communities affected by the LNG projects.

“This announcement from the Biden administration is truly monumental for our communities,” said Roishetta Ozane, director of the Vessel Project. “As someone who has witnessed the devastating impacts of fossil fuel extractive industries, I am filled with hope and gratitude for this important step towards justice.”