News that the Department of Energy (DOE) may pause authorizations for new LNG export projects has stirred reactions from industry groups and environmentalists alike, but what does it mean for domestic and global natural gas supply outlooks?
The New York Times was the first to report Wednesday that the Biden administration has directed DOE to review climate impacts of new liquefied natural gas export projects, potentially delaying authorizations until after the November elections.
The initial headlines focused on Venture Global LNG Inc.’s CP2 project, one of the largest proposed projects with long-term offtake contracts in place. CP2 is not yet approved by DOE to export gas worldwide, i.e. to countries without free trade agreements (FTA). Venture’s role as a potential gas supplier to Europe has also placed it in the sights of environmental groups on both sides of the Atlantic.
However, the Times report also suggested DOE could apply the potential directive to around 17 pending LNG export authorizations.
‘A Significant List’
Rapidan Energy Group’s Alex Munton told NGI it is more likely that 10 projects could face a negative development impact from a pause, as some pending applications in the DOE backlog are for expanding already authorized export capacities.
“It’s a smaller list, but it could also be a growing list and it starts with Commonwealth LNG, Port Arthur Phase Two and [Cheniere Energy Inc.’s] next expansion of Corpus Christi,” Munton said.
Ten North American projects that would be fed by U.S. natural gas, representing almost 20 Bcf/d of additional LNG export capacity, have been given worldwide FTA approval – but they have not yet been sanctioned. The list of projects with non-FTA approval has shrunk since last year after DOE shifted its policy to deny extensions to projects that had not met requirements to advance.
After Energy Transfer LP’s Lake Charles LNG and Magnolia LNG, in development by Glenfarne Energy Transition LLC, reapplied for export permits, Delfin LNG became the next project facing a pending authorization deadline. The Delfin project has until the end of July to begin operations under its authorization order.
Following the DOE’s policy shift last May, Munton said the decision underscored that any North American LNG project without a valid global export authorization in hand was “not commercially viable.”
With the latest possible policy shakeup, Munton said project developers will be challenged to find financial backing and contracts in the near-term for large-scale export projects without DOE authorization in hand.
“It really boils down to the fact that more than 70% of global LNG demand sits within markets that do not have a free trade agreement with the United States and, therefore, you would not embark on a multi-billion dollar investment to produce something that you can't sell to most of the world's customers,” Munton said.
‘A Different Story’
Following Russia’s 2022 invasion of Ukraine, analysts have been reviewing the possible short-term supply crunch for LNG, as spot competition heats up and capacity additions appear limited before late 2026.
Columbia University’s Ira Joseph, a global fellow at the Center on Global Energy Policy, told NGI that a potential pause by DOE could create issues for projects that have not yet reached a positive final investment decision (FID). However, he said the pause wasn’t likely to change the global LNG supply outlook in the long run.
“I don't think it changes the outlook materially because there's so much capacity that has received non-FTA approval that hasn't gone to FID yet,” Joseph said. “If we get into a world where all the volumes are signed from projects that have already received approval, then I think it’s a different story.”
About 10.7 Bcf/d of LNG capacity is under construction in the United States, all of which is sited on the Gulf Coast, according to NGI’s North American LNG Export Project Tracker. Three of the five projects are forecast to come online in some capacity by the end of 2025.
Overall, a total of 45.1 Bcf/d of export capacity has been proposed in North America.
However, Joseph said the question of whether headwinds for long-delayed projects could impact the global supply balance becomes more important after 2030.
“It definitely affects the projects that don't have non-FTA approval, and if I was working at one of those projects, I would probably be pretty tense right now,” Joseph said. “In the larger global LNG balance, this is not going to be that huge of an issue anytime soon.”
‘No Review Needed’
The Biden administration as of Thursday had not publicly confirmed reports of changes to the LNG authorization policy. However, industry groups were quick to call out any delays as a blow for the U.S. economy. More than 30 state and national trade groups penned a letter to DOE Secretary Jennifer Granholm opposing a pause.
American Petroleum Institute CEO Mike Sommers called the New York Times report evidence of a political game that could have a chilling effect on relations with international allies.
“There is no review needed to understand the clear benefits of U.S. LNG for stabilizing global energy markets, supporting thousands of American jobs and reducing emissions around the world by transitioning countries toward cleaner fuels,” Sommers said.
Some exploration and production trade groups also attacked the possible authorization freeze. LNG exports were expected to expand U.S. natural gas production and consumption to record highs through the decade, according to the Energy Information Administration.
“America should be exporting more LNG not less, and any action or future plan to hinder American LNG exports, including the White House's reported pause on CP2, is misguided policy that undermines the US economy, our allies' security, and global emissions goals,” American Exploration & Production Council CEO Anne Bradbury said.
Meanwhile, some European lawmakers applauded the potential pause for a climate analysis of U.S. LNG exports. In a letter to President Biden, 60 members of the European Parliament and national legislative bodies argued that energy firms have been using Europe’s natural gas shortfall as a “false deception” to derail climate goals.
"Europe should not be used as an excuse to expand LNG exports that threaten our shared climate and have dire impacts on U.S. communities," lawmakers wrote in the letter.
