Analysis by Energy Workforce President Tim Tarpley
In a somewhat surprising move, the Biden Administration announced on Friday that it would “pause” new approvals for LNG export applications to non-FTA (free trade agreement) countries. DOE announced on Friday that it would conduct a review during the pause to “look at the economic and environmental impacts of projects seeking approval.” Many of the paused projects awaiting approval will ultimately ship LNG to Europe and Asia and many of these fast-growing demand countries do not have FTA agreements with the United States.
On background, in the U.S. currently there is a two-tiered system for LNG permit approvals. For an approval to build a facility is obtained by FERC and then if the facility plans to export to a non-FTA country, an additional analysis is required by DOE to determine whether the exports are in the “national interest.” It is this second analysis that the current pause will affect. While DOE did not name particular projects that would necessarily be affected, we believe that the likely targets are Sempra Infrastructure, Commonwealth LNG, Energy Transfer and Venture Global.
This pause is of particular importance because some 80% or more of U.S. LNG exports go to non-FTA countries so the market is significant. While this pause will not affect exports from facilities that are already permitted, this could certainly have a chilling effect on the entire U.S. export market. European countries especially are desperate to ensure the long-term consistency and predictability of their imports as the supply of Russian gas has been disrupted by the war in Ukraine and the destruction of the Nordstream pipeline.
These European customers may be forced to find other suppliers if they see the long-term sustainability of the American imports called into question. There are numerous other countries that will be willing to fill the void created by this uncertainty so ultimately the pause will likely cause the U.S. to lose market share in the world LNG markets.
The move appears to be more about the 2024 election than actual policy. LNG exports that allow countries to further wean themselves off coal fired power generation will actually lower emissions and the Administration surely knows this. In fact, since 2005, the United States has lowered its carbon emissions more then nearly any other country primarily from transitioning coal fired power generation to gas.
This same formula can be replicated around the world, dramatically cutting worldwide emissions. President Biden has been under political pressure from his left flank to do more to curtail oil and gas production (which actually is at an all-time high in the U.0.S) and this appears to be a lever which he feels he can use to do so. However, political support in both parties for LNG exports is strong and the President may have miscalculated here. There are a number of legislative efforts already underway within Congress to push back at this decision and EWTC will be working to support all of these efforts. It is very possible that the Administration may back off this decision sooner than later.
This decision could not have come at a worse time. The Russian invasion of Ukraine continues to drag on, and an Iranian-backed militia group in Syria attacked a U.S. forward operating base in Jordan over the weekend. So far, energy prices have stayed relatively stable; however, a significant escalation between the United States and Iran could have a significant destabilizing effect. We have already seen some strong statements from our European allies on this pause, and we can expect more pushback to continue in the coming days and weeks. It is our hope that either the Administration quickly reverses course or Congress steps up and includes legislation that would take away the Administration’s ability to pause these permits. Both options appear possible at this point.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.