Gas Blockage
The Biden Administration's decision to pause LNG export licenses stinks. It is another self-imposed restriction on U.S. geopolitical and economic power.
Another day, another short-sighted, ill-examined energy policy decision by the United States government that has been corrupted by a combination of 1) the belief the climate is sprinting headlong towards an apocalypse due to GHG emissions and 2) financial interests of powerful players (see
’s latest for a solid rundown on #2). These policy own goals are becoming all too predictable from our elite policymakers.What Exactly is Paused?
Short answer: U.S. Department of Energy (DOE) authorizations of LNG exports to non-Free Trade Agreement countries.
Long answer: Under the Natural Gas Act, the Federal Energy Regulatory Commission (FERC) is directed to follow National Environmental Policy Act (NEPA) rules and conduct environmental assessments of the proposed onshore or near shore project. If it is deemed to meet NEPA and other standards, the facility is granted approval. If located in deep water offshore, the proposed facility falls under the jurisdiction of the Maritime Administration (MARAD) and the Coast Guard who conduct similar reviews.
If FERC (or MARAD) approves the facility then DOE reviews and decides on the authorization to export the liquid natural gas (LNG) molecules. If the LNG export license request is solely for countries with which the United States has a free trade agreement (FTA)1, the authorization is granted “without modification or delay.” If the proposed exports are to non-FTA countries, then the public interest determination process kicks in. The public interest determination includes an assessment of various issues related to U.S. energy security, domestic market needs and economic impacts, environmental concerns, and other issues such as geopolitical interests. The DOE authorization is what was paused.
For context, since U.S. LNG exports began in early 2016 about 80% have gone to countries without an FTA. Because of this market discrepancy and the desire to maintain optionality of export destinations, all LNG export facilities proposed in the United States have pursued an authorization for non-FTA countries, so the temporary pause announced by the White House impacts all projects currently under review. It does not, importantly, impact those projects which have already been authorized and/or are under construction today. And the announcement does include a national security waiver which would allow for authorization of additional exports in case of a geopolitical emergency. Go to the link below to review the projects impacted by this decision:
Snapshot of U.S. LNG Exports
The United States is the world’s largest LNG exporter. It currently has an LNG export capacity of just over 140 billion cubic meters (bcm) per year — nearly the amount of pipeline gas Russia sent to the European Union in 2021. Total global LNG export capacity is over 600 billion cubic meters.
Qatar and Australia are the second and third largest LNG exporters, and combined with the United States they make up 60% of global LNG supply. Russia, Algeria, Indonesia, Nigeria, Malaysia, and others make up the bulk of the remaining LNG supply.
The United States has an additional 122 billion cubic meters of capacity currently under construction which will nearly double U.S. LNG export capacity by the end of the decade. It is expected that by 2030 the United States will have 50% more LNG export capacity than Qatar, the second largest.
The United States is a critical supplier to major markets (and allies) in both Europe and Asia. In Europe, for example, U.S. LNG supplies tripled from 2021 to 2023 (22 bcm to 63 bcm) while Russian pipeline supplies dropped from 158 bcm in 2021 to 28 bcm in 2023. Other natural gas suppliers stepped in to support Europe as well, but without U.S. LNG, Europe would have buckled under Russia’s energy blackmail and would have experienced even higher energy costs and economic contraction than they have since 2022.
Why Make This Decision?
The political strategists and policymakers in the U.S. administration are the best at what they do, right? Right?
The idea the Biden Administration had to appease the climate-alarmist-poverty-promoter-voters™ to ensure their votes in the November Presidential election is so inexplicably dumb. Who is the alternative Presidential candidate for that historical group of swing voters (kidding), especially when no other Democratic Party candidate is allowed to run against President Biden and all third party candidates have been marginalized in a coordinated political and media campaign? Biden has been the most climate-friendly president of all time. There is no way this bloc of voters don’t vote for Biden in November. Because if they don’t, it adds to the likelihood we get another Trump term in America which, according to the poverty-promoter-voter, is akin to a death knell for the world’s climate.
The White House’s announcement said the decision was made because…
The current economic and environmental analyses DOE uses to underpin its LNG export authorizations are roughly five years old and no longer adequately account for considerations like potential energy cost increases for American consumers and manufacturers beyond current authorizations or the latest assessment of the impact of greenhouse gas emissions.
So the original analysis is out of date? Keep in mind the last economic and environmental analysis DOE completed five years ago had assessed the impact of export amounts greater than the current amounts today. Same as the original studies under the Obama Administration. But who cares about the economic studies — what have the domestic price impacts been since exports began?
The spot price of U.S. benchmark natural gas at the end of January 2016 (the month before the first LNG export from the United States) was $2.28 per million British thermal units (mmBtu’s — the industry standard measurement for natural gas price in the U.S.). On January 26, 2023 the day of the announced pause on LNG authorizations the same spot price for gas was $2.36 (it’s $2.08/mmBtu today). And that is not inflation adjusted! The United States LNG exports have grown from zero in January 2016 to the largest amount in the world and the price has barely budged, and in real terms it has declined. Sure, there has been price volatility in the eight years since exports started, but there was price volatility before that too. According to the IEA, 2023 saw a price reduction of 60% for natural gas in the United States compared to 2022 at the same time exports grew to historical levels.
What is another reason given for the pause? To ensure GHG emissions are taken into consideration during the “public interest determination” analysis. Let’s see how this holds up under the slightest scrutiny.
The idea put forth by climate activists is less U.S. LNG, less GHG emissions. An easy question to ask to refute that proposition is — does the United States hold a monopoly on LNG exports globally? No. Who are the other major LNG exporters that may step in and backfill potential future reduced U.S. LNG supplies? Check out the figure below, shown in billion cubic meters per year:
Source: GIIGNL, The transformation of gas markets – GIS Reports (gisreportsonline.com)
Based on the list of countries above, who believes a significant majority of them will follow the United States and voluntarily limit their future LNG exports? Anyone? Even Canada is planning to bring online LNG export capacity by the middle of the decade. Additionally, the other LNG suppliers from the list above do not have as strict environmental laws as the United States who happen to be at the leading edge of methane reduction efforts from its natural gas supply chain.
Global gas demand will rise in the future. Limiting supply will not have the desired effect on demand. The energy demand will just find other sources (likely fossil fuel — e.g., coal). Developing economies in Africa, Asia, and other geographies where billions of people are in dire need of reliable, dense sources of energy will demand it. Hell, the natural gas demand in the United States rose last year to an all time high! Gas demand is growing nearly everywhere.
Even Europe, where natural gas demand has declined for the last couple of years, will need more LNG supplies in the coming decades. Domestic production is declining, pipeline imports are limited in additional growth from today, and demand in Europe could change depending on the outcomes of the summer European elections and potential rollback of climate policies and a focus on industrial competitiveness from the next European Commission. One could see a future where Germany undertakes a large-scale natural gas power plant build out so it can shrink its coal-fired power generation and associated GHG emissions. All of this means that even Europe could see higher gas demand in the future, especially if it wants to save what is left of its energy intensive industries.
Geopolitical Impacts
Without the current amounts of U.S. LNG exports it is highly plausible the U.S.-led coalition to support Ukraine would have fractured a long time ago. Russia could have squeezed Europe, as it hoped to do, by turning its natural gas pipelines off to maximize economic pain. Imagine the natural gas and energy price ceilings in 2022 if there had been a lot less U.S. LNG flowing to Europe.
According to the International Monetary Fund, Germany had the worst performing major economy in 2023. Its massive energy-intensive industry has taken a beating over the last two years. Its overreliance on cheap Russian natural gas made it extremely vulnerable to energy prices spikes. German industry has scoured the world for LNG supplies to offset the loss in Russian supplies. Nearly 10% of German demand was recently secured through two long term contracts with Venture Global’s Calcasieu Pass 2. The CP2 project is the focus of environmentalist’s like Bill McKibben and Emily Atkins — calling it a “carbon bomb” that must be stopped — and it is one of the LNG export projects which have been caught in the U.S. policy pause. Venture Global’s CP2 project is Germany’s largest single source of LNG long term contracts. But the project supplying the LNG is now in limbo. What will Germany do now with the additional uncertainty of future gas supplies?
As the European Union’s largest economy, Germany’s pain is felt by the entire Union. An economically weakened Europe is not an optimally strong U.S. ally. The decision on LNG exports will hurt both sides of the Atlantic unnecessarily.
Qatar — the world’s second largest LNG exporter — relies on a single port complex at Ras Laffan to export all of its LNG to global markets. A single facility — processing, compressing, and liquefying gas from a single field that Qatar happens to share with Iran and is located in a highly volatile region — is a significant chokepoint for the global LNG market. One major accident or sabotage at Ras Laffan and global LNG/energy markets are in trouble. Ensuring flexible, additional LNG supplies from the United States provides a global buffer to gas markets in time of uncertainty and heightened geopolitical risk. Delaying additional U.S. LNG from global markets will weaken U.S. geopolitical power and result in greater risk to its partners and allies.
In Asia, critical allies like Japan and South Korea are highly dependent on imported LNG. Many of Japan’s long term LNG contracts with Qatar are expiring the latter half of this decade and they desperately want to diversify their suppliers and buy more American LNG, which currently supplies about 8% of Japanese LNG demand. The uncertainty now surrounding additional U.S. LNG supplies post-2030 is disconcerting to the Japanese and other Asian allies of the United States. They face many of the same economic risks as Europe, and less U.S. primary energy supplies to global markets is not a good thing for them or for the United States.
So What?
The U.S. Administration’s decision is a nakedly obvious domestic political move aimed at convincing a group of voters to stay with President Biden when those voters have consistently shown they will not vote for any other political party in a general election. The delay in additional LNG export licenses will last until after the November Presidential elections. If Biden wins a second term, a decision on additional LNG licenses likely won’t come until mid- to late 2025. If Trump wins, its likely this pause will be overturned on day 1 and the licensing process will continue at pace.
Either way, the delay has created uncertainty at a time when security of supply and the need for certainty from the United States is crucial. This is not just a simple exercise of gauging whether or not the LNG market may be sufficiently supplied over the next five-to-ten years — this longer term view must consider additional factors such as geopolitical power and the need to ensure sufficient spare supply capacity for an increasingly global LNG market. Potentially limiting U.S. LNG supply will not reduce global GHG emissions, it will just shift the source of those emissions to less transparent and environmentally responsible producers who may have geopolitical ambitions contrary to the United States and its allies.
This policy decision smells bad. Gas supplies from the United States should not be blocked. The U.S. should allow for the build out of additional LNG export infrastructure. It should continue to take substantive steps to reduce fugitive emissions from natural gas production, transport, and shipment to overseas markets. And it should not create uncertainty about future security of supply for its allies and partners.
Please like “🖤” this piece (assuming you do!) and let me know what you think in the comments section. Let me know if there are current issues you’d like me to address in subsequent posts. Thanks!
Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. There is also an FTA with Japan solely focused on critical minerals.
Great article. Detailed, comprehensive analysis and likely potential outcomes for LNG supply and demand. Thank you for posting.
“Based on the list of countries above, who believes a significant majority of them will follow the United States and voluntarily limit their future LNG exports? Anyone?”
Unfortunately, the McKibbenites of the world would never 1) even consider looking at such a list and 2) ponder the very important question you asked from it. Their myopic view of the world is a deeply ingrained addiction with predictable behaviors.
I very much appreciate the facts and details you’ve presented here.