Analysis of the Implications of Biden Administration’s Pause on New US LNG Export Approvals

On January 26, 2024, President Biden pressed the pause button on the approval of some new LNG export projects in the United States and began to review the impact of new LNG export projects on the economy, environment and national security. According to the White House’s statement, LNG export projects currently in operation and LNG export projects under construction are not affected by this policy.

The White House statement also pointed out that the move was mainly due to environmental protection and climate change considerations. In other words, President Biden’s decision is likely to be motivated by the desire to win the votes of more young environmentalists, rather than by the defense of the national interests of the United States. A growing number of environmentalists believe that new US LNG exports have slowed the world’s reliance on fossil fuels, and they fear that new US LNG exports are hindering the world’s transition to low-carbon energy sources. As the U.S. presidential election approaches at the end of November, this environmental concern has become an increasingly important factor affecting votes in the general election.

The duration of the suspension is uncertain

Some Western media reports have also highlighted another major factor, namely lobbying by US industrial customers, especially in the chemical industry, to the government in recent years. Like the power industry, industry, especially the chemical industry, is a major user of gas downstream of the U.S. natural gas industry. Lowering LNG exports will help lower the price of natural gas in the U.S., which in turn will help reduce gas costs for the chemical industry. The author himself is skeptical about the plausibility of such reports. It’s no secret that the chemical giants are lobbying Republicans. And Donald Trump, the Republican Party’s most important presidential candidate, announced in late January that he believes the LNG export project will help U.S. jobs and economic development. Trump has made it clear that once he becomes the next president, he will immediately reopen the approval of LNG export projects.

Developers of LNG projects that use U.S. natural gas as a gas source will need to obtain government approval before starting the project. One approval is the Federal Energy Regulatory Commission (FERC), and LNG importers in Europe and most of Asia are not free trade partners of the United States. The other approval is approval from the U.S. Department of Energy (DOE), which evaluates the LNG export project to ensure that the export is in the public interest of the United States. In other words, whether the US Department of Energy’s approval can be obtained means whether the project can export LNG to Europe and most Asian countries. President Biden has pressed the pause button on LNG exports to non-FTA countries approved by the U.S. Department of Energy, which means that the new policy will have an impact on LNG importers in Europe and most of Asia.

How long will the suspension last? The timing of the suspension of approvals is fraught with uncertainty. What we can see at the moment is that the timing of the restart depends more or less on the results of the presidential election at the end of 2024. However, the outcome of the election is not the only factor that determines whether the reopening will be reopened, and a range of other factors (e.g., the evolution of geopolitical conflicts, changes in the macroeconomic situation in the United States and abroad, actions of environmentalists, pressure from European allies, etc.) may also play a role in the decision-making process.

The impact on all parties varies

While American environmentalists have celebrated the move on various social media, we should ask ourselves whether this decision is really a fundamentally good solution to the global climate problem. Probably not. Climate is not just a problem for the United States, it is a problem for the whole world. Natural gas, as a fossil fuel, is cleaner and more low-carbon than oil and coal. Looking ahead to the next three decades, Asia is the main source of incremental global oil and coal consumption. Asian countries are actively developing new energy, and before the moment when their new energy can be powerful enough to take charge of itself, increasing the use of natural gas, especially increasing the consumption of imported LNG, will help these Asian countries successfully complete the transformation from an energy consumption structure dominated by fossil energy to an energy consumption structure dominated by green and low-carbon energy.

The suspension of approvals for some LNG export projects has at least six implications for the global LNG market.

First of all, for overseas buyers, the impact of the policy will be relatively small until 2026. Most of the LNG projects that have been temporarily suspended due to the policy are expected to be put into production between 2027 and 2028, with another three to four years to go. As a result, buyers in Europe and Asia are currently in a state of calm wait-and-see that LNG supply has not been affected for the time being. For China, in the short term, the impact is less pronounced. This is due to China’s strategy of diversifying the sources of imports that China has pursued for many years. In the long run, there are still some uncertainties.

Second, the overall impact on the total global natural gas supply is small from 2027 to 2028. If project approvals do not restart soon after the election, the size of the LNG export increment in the United States in the 2027-2028 period will be nearly 80 million tons. Fortunately, during the same period, Qatar LNG has a large number of new production capacity online, which will offset the negative impact of the decline in US LNG export approvals on the total global supply, so that the original excess global LNG supply will be transformed into a new situation of relative balance between supply and demand.

Third, for countries that seek to achieve energy security through an alliance with the United States, the Biden administration’s move sends a stark warning signal that the energy security of allies may not be a top priority when political interests and the energy security of allies conflict.

Fourth, for the EU, in the near term, this could be a supply-side blow. Since the outbreak of the Russia-Ukraine conflict, Russia’s pipeline gas exports to the EU have begun to decline significantly. The combination of declining domestic gas production in the EU, the imminent end of the contract for the Russian gas pipeline through Ukraine, and the EU’s commitment to introduce Russian gas consumption by 2027 means that the EU will need to seek LNG supplies from outside Russia to fill the gap caused by the withdrawal of Russian gas in the short term. This means that there is an urgent need for LNG imports from the United States in the European Union.

Fifth, for Russia, to a large extent, this could be a positive. In the event of a black swan scenario, it is hard to imagine that the sanctions on Russian gas will be strictly adhered to by major gas user countries if the global LNG supply cannot meet the demand due to the reduction of new LNG exports from the United States. The larger the gap between supply and demand, the greater the space for new markets for Russian gas.

Sixth, the pause could be a signal of a downward trend in long-term equilibrium prices for natural gas prices in the United States and associated gas (e.g., ethane) generated during natural gas development. The suspension of approval of US LNG export projects, if unfortunately becomes a long-term phenomenon, will trigger further growth in US domestic supply. In the United States, due to the unusually high temperature weather, domestic natural gas prices have fallen to the lowest point in three decades. Against this backdrop, further rapid growth in domestic supply is likely to exert greater downward pressure on natural gas prices. At the same time, the price trend of associated gases such as ethane has been similar to that of domestic natural gas in the United States for more than a decade. The downward trend of natural gas prices indicates that the price of associated gas is also declining.

Finally, for the low-carbon transition in the United States, the abundant supply of natural gas in the domestic market will help further reduce the price of natural gas in the domestic market, which in turn will help accelerate the development of some low-carbon energy industries such as low-carbon hydrogen and blue ammonia.

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