LNG pause presents dilemma for feds
WASHINGTON — The first shipment of U.S. liquefied natural gas left Cheniere Energy’s Sabine Pass export terminal in Louisiana almost eight years ago, ushering in a new age of American energy exports to allies around the globe and generating tens of billions of dollars a year for the U.S. economy.
But with climate change now gaining bandwidth in global leaders’ minds, the greenhouse gas emissions produced by LNG, while in some respects markedly less than coal, are driving a tense assessment within the Biden administration about whether building more LNG terminals is in the world’s best interests, while they put a pause on permitting.
At the center of that debate is the network of American allies now dependent on U.S. LNG, for whom a reduction in American supply could have far-reaching implications beyond climate change, affecting the economic relationships around which so much diplomacy is built.
“The climate concerns are real, and they deserve a serious, hard look, but there’s other geopolitical and market considerations we need to take into account,” said Ben Cahill, a fellow at the Center for Strategic and International Studies, a Washington think tank. “The fact is, gas demand is going to be with us for a long time and there will be multiple suppliers vying to meet that market demand.”
The United States exported more than 88 million tons of LNG last year, surpassing Qatar and Australia to become the world’s largest supplier. And with multiple terminals under construction along the Gulf Coast, the sector is expected to grow exponentially in the decades ahead, with research company Wood Mackenzie projecting LNG exports from the U.S. and Mexico to reach a capacity of 238 million metric tons per year by 2050, accounting for 30% of global supply.
But in a note to clients last week, the company warned that while a short-term pause on U.S. LNG permitting was unlikely to have the same effect as a sustained interruption, it could “have lasting implications on the global LNG market and could affect how buyers perceive US LNG.”
“While we expect existing LNG buyers to wait in the short term, these and other potential new buyers could start to look at competing projects outside of the U.S., such as those in Canada, Australia and particularly Qatar, as alternative supply sources,” wrote Giles Farrer, head of gas research at Wood Mackenzie.
Such a possibility has been seized on by Republicans, with Rep. Jeff Duncan, R-S.C., chair of the House Subcomittee on Energy, Climate and Grid Security, calling the pause “a gift to (Russian President Vladimir) Putin” at a hearing Tuesday.
The question hanging over the White House’s deliberations is what happens when the permitting review is completed, which is expected to happen within the next 12 months.
Many within the administration have deep concerns about the LNG industry’s life cycle emissions. While burning natural gas produces about half the carbon dioxide of burning coal, methane leaks during the production and transportation of natural gas change the calculus markedly, particularly in the short term.
A study by the Department of Energy in 2019 found that the life cycle emission of shipping LNG to European power plants could actually exceed that
of burning coal over a 20year period — though over 100 years LNG emissions outperformed coal.
Were the U.S. to extend the pause or require LNG facilities to mitigate their emissions, as the Australian government did last year — much to the concern of buyers in Asia — that could shift gas buyers away from export terminals along the Gulf Coast to countries with lower environmental standards.
At a meeting in a Washington think tank last week, the head of a Japanese research company, who was speaking on the condition of anonymity, warned that even a 10month pause on U.S. permitting
could, “lead to a lot of loss of money and confidence in the business community.”
“With this pause, it would make our efforts to reduce our dependence on Russian gas and LNG much harder, and not just for Japan,” he said.
Since Russia invaded Ukraine in early 2022, its pipeline exports to Europe have declined close to sixfold. If the U.S. reduced its LNG exports, it would be a boon for Russian projects, which are trying to attract customers in Western Europe and Asia, said Leslie Palti-guzman, head of research at Houston-based analytics company Synmax.
Right now, the world has more LNG export terminals being built than it needs, with the International Energy Agency warning of an oversupply beginning next year because of an “unprecedented surge” in projects.
A U.S. pause on permitting would have no impact on LNG supply over the next five years — terminals take years to build — but it could be a boon for competing nations come 2030.
“The U.S. is a reluctant energy superpower,” Palti-guzman said. “Other counties like Russia and Iran, they have so much gas and they would like this dominance.”