In the days since the Biden administration’s decision to review the process for approving more U.S. LNG export capacity, speculation has swirled about what a temporary pause of Department of Energy (DOE) authorizations means for the industry.
NGI has compiled a brief primer with answers to some of the largest questions looming over the U.S. liquefied natural gas sector following the administration’s Jan. 26 announcement.
What Happened?
DOE has said it will pause authorizations of new export authorizations while the agency reviews its policies for determining whether a project will be in the public interest. Specifically, the review freezes consideration of permits that would allow LNG developers to sell U.S. volumes to firms in countries that do not have a free trade agreement (FTA) with the United States.
These permits, referred to as non-FTA, are considered essential for large-scale export projects because of the flexibility in customer base they provide. While an FTA permit gives an exporter access to customers in 20 countries, including Asian buyers in Singapore and South Korea, non-FTA approval makes far more demand centers available and a project more attractive to financial backers and large portfolio players.
Why Did This Happen?
The importance of export permits to a project’s feasibility and the direct oversight that DOE has over authorizations has made the agency a critical tool for the administration to address criticism over its energy policies.
While current DOE policy requires a study of environmental and market impacts of LNG projects, the agency’s authorizations have been called a rubber stamp by environmentalists and some trade associations. Critics have also scrutinized a lack of climate change analysis in environmental reviews or consideration for the cumulative impact on domestic natural gas prices as U.S. export capacity has skyrocketed since 2016.
DOE public interest policy has been reviewed a couple of times in the past, including during the Obama and Trump administrations.
A non-FTA permit has yet to be granted by the Biden administration. However, conservation groups have continued to target FERC approvals of LNG projects with lawsuits and political pressure.
In President Biden’s statement following the action, he acknowledged the review process was in direct response to strengthening climate considerations in the export review process.
“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,” President Biden said. “This pause on new LNG approvals sees the climate crisis for what it is: the existential threat of our time.”
How Long Will The Pause Last?
The White House and Secretary of Energy Jennifer Granholm have called the pause temporary until the analysis has been completed. However, barring Congressional intervention, the open-ended nature of the action has led several analysts to suggest the pause could last until at least after the November election.
DOE has said the freeze could also be reversed in the event of “unanticipated and immediate national security emergencies” that impact the domestic or international natural gas market.
What Projects Will Be Impacted?
The short answer is any project that currently doesn’t have a non-FTA authorization could see a potential slowdown in development until the freeze is over. However, developers with more commercially advanced timelines, or those with authorizations nearing the end of the seven-year period in which projects must begin operation under DOE’s policy, will be particularly under pressure.
At least seven projects in the United States and Mexico under DOE jurisdiction – and considered commercially advanced – could be impacted in the near-term, according to an NGI review of pending projects. That amounts to a combined 9.3 Bcf/d in export capacity under increased risk. These are projects that currently have offtake agreements or, in one case, have already been constructed.
These projects include New Fortress Energy Inc.’s Altamira Fast LNG offshore Mexico’s western coast; Commonwealth LNG in Louisiana; Energy Transfer LP’s Lake Charles LNG; Sempra Infrastructure's Port Arthur LNG Phase 2 in Texas, and the second phase of the Mexico Pacific LNG project in Sonora.
There are also two projects that NGI considers commercially advanced, but are still awaiting Federal Energy Regulatory Commission approval before they can be considered for non-FTA authorization. They are Cheniere Energy Inc.’s eighth and ninth trains at Corpus Christi LNG and Venture Global LNG Inc.’s CP2 project.
There are another four projects with a combined 3 Bcf/d of proposed export capacity that could be impacted. Most of these projects have been long-proposed, but have yet to sign contracts or move out of pre-filing status with FERC.
NGI tracks the latest status of dozens of proposed and existing North American LNG projects in its North American LNG Export Project Tracker.
What Are The Implications for Global LNG Supply?
It’s important to note that of the most commercially advanced U.S. projects impacted by the pause, projected start-ups ranged anywhere from this year through the end of the decade.
In the meantime, around 26.31 Bcf/d in LNG projects are under construction globally, according to Wood Mackenzie. In the United States, five projects are under construction on the Gulf Coast that could add 11 Bcf/d in export capacity by the end of 2028. By the end of the decade, U.S. feed gas demand could be pushed to near 24 Bcf/d.
The crunch in natural gas supply and added LNG demand after the 2022 invasion of Ukraine have cast a spotlight on supply balance, with capacity additions expected to remain relatively low until 2026. However, decreased natural gas consumption in Europe and incremental boosts in other energy sources in Asia are expected to ease market tightness after 2026.
Wood Mackenzie analysts wrote in a recent note that “if the pause is temporary and simply delays” final investment decisions to 2025 and 2026, any market impacts would be limited and could be erased by at least 2029.
