The Biden administration’s temporary pause on new U.S LNG export permits has for now derailed an anticipated wave of new volumes that was expected to hit the market later this decade, prompting major global gas buyers to explore other options.
Asia and Europe have increasingly relied on the United States for a large portion of their liquefied natural gas supply, which has been helping to drive investments in the industry. U.S. exporters shipped 56.4 million tons (Mt) to Europe last year and 23.6 Mt to Asia, according to Kpler data.
However, whether those export trends continue at the current breakneck pace could be in question given the U.S. regulatory pause. The Department of Energy’s (DOE) suspension of new export permits while it reviews authorization policies could freeze development for at least seven commercially advanced projects on the Gulf Coast, according to NGI calculations.
Poten & Partners’ Jason Feer, global head of business intelligence, told NGI that regulatory uncertainty could create “very significant headwinds” for several projects due to the long construction timelines of large-scale terminals.
While the DOE review doesn’t impact currently operating or approved LNG projects, it could pause development for at least 11 proposed facilities in North America awaiting a decision on a non-free trade agreement (FTA) permit, according to NGI calculations. At least seven projects in the United States and Mexico under DOE jurisdiction are considered commercially advanced. That amounts to a combined 9.3 Bcf/d in developing export capacity that may be under increased risk.
The unknown duration of this recent pause on permit approvals is another major concern, EnergyAspects analyst David Seduski said.
“None of the terminals that are now delayed by the [DOE’s] LNG freeze were planned to come online before 2028 at the earliest, and some were more likely to start up in 2030, before the policy shift,” Seduski said.
Seduski explained that offtakers who booked volumes from these impacted projects, particularly those close to achieving a final Investment decision (FID) this year “should be concerned about the long-term security of their supply.” Some of those projects include Commonwealth LNG and Venture Global LNG Inc’s Calcasieu Pass 2 (CP2).
However, if the freeze winds up only being a year or so, it would likely become a matter of cost than supply security, Seduski added. "These offtakers could go into the market to backfill those cargoes if the pause delays the next wave of U.S. LNG development.”
Seduski said EnergyAspects does not anticipate the market to be short of LNG in the late 2020s and early 2030s thanks to Qatar's massive North Field LNG expansion and the facilities already under construction in the United States and Canada.
Europe could be more impacted by the permit pause as the bulk of U.S. LNG exports have gone to Europe since Russia's invasion of Ukraine, according to EnergyAspects.
Seduski said “that will be of little solace to any Asian offtakers who have signed up for stalled U.S. projects, but countries like Japan, China and South Korea should be able to backfill cargoes from Australia, Qatar and Malaysia. Atlantic Basin supply is more limited outside the United States, though the existing U.S. terminals do have some space between contracted volumes and full capacity.”
U.S. Assistant Secretary of State for Energy Resources Geoffrey Pyatt said in a media briefing last week that “there is no reason for concern among our allies, whether they be in Asia, like Japan, or in Europe.” Pyatt added the country’s LNG shipments are slated to almost double by the end of the decade due to already licensed facilities.
But some Asian customers tied to projects impacted by the permit freeze have expressed concern. Jera Co.Inc and Inpex Corp., both of Japan, have each signed 20-year contracts for 1 Mt/year with CP2 in Louisiana. Kyushu Electric, also of Japan, has an agreement with Energy Transfer LP’s Lake Charles project.
“We see realization of CP2 and other new U.S. LNG projects as important for Japan,” Jera’s Tetsuo Yoshida, head of global investor relations, said recently at a Tokyo conference.
Sam Reynolds, analyst for the Institute of Energy Economics and Financial Analysis (IEEFA), said Japan’s LNG demand fell 8% in 2023 due to the rise of nuclear and renewable energy generation.
“The recommissioning of several nuclear reactors in 2024 and 2025 could cause LNG demand to fall at a similar pace in the coming years,” Reynolds told NGI.
IEEFA estimates that Japan’s LNG demand could fall by 27 Mt by 2030 – roughly a third of the country’s current annual imports – based on government plans to raise the share of nuclear and renewables in the power mix.
South Korea’s SK Gas has signed an 18-year contract for 0.4 Mt/year from the Lake Charles LNG project. However, Reynolds said, “South Korean LNG demand fell 4% in 2023. The country’s climate and energy targets suggest LNG demand could fall 20% by 2036, as LNG is displaced by increases in renewable energy.”
Europe has been in close contact with the DOE on the permit pause, and was told about the announcement in advance, a European Commission spokesperson told NGI.
The United States “has informed us that this review will entail a temporary pause in approvals of pending permits for future LNG exports, with no impact on export projects already approved,” the spokesperson said. “It also includes an exemption for immediate national security emergencies. Therefore, this pause will not have any short- to medium-term impacts on the” European Union’s security of supply.
U.S. LNG plays an important – but not a dominant role – for German power producer Uniper SE since the company has a diverse gas and LNG supply portfolio. Germany is Europe’s largest gas consumer. The pause has no direct business impact on Uniper, company spokesperson Charlotte Rockenbauer told NGI.
“Nevertheless, the planned reviews could have negative consequences for Germany's and Europe's energy security in the future, for example, in the form of price increases due to volume shortages in the market,” Rockenbauer said.
