Permitting pause on US LNG projects casts doubt on long-term market share

The White House moratorium on granting key LNG export licenses to new projects stands to have minimal short-term effects on exports from the US, already the world's top supplier of the fuel with an export capacity that is poised to double over the next five years.

But sector experts gauging the effects of the permitting pause -- widely viewed as a political move ahead of the November presidential election -- say it creates new uncertainty about the longer-term global market share of US LNG. Trade partners will likely reassess associated supply risks, while long-term contracts tied to a series of projects facing new regulatory uncertainty will likely stall, analysts said.

"The US is definitely a reluctant energy superpower," Leslie Palti-Guzman, senior associate at the Center for Strategic and International Studies, said during a Jan. 31 online discussion of the policy development. "It's a political move with no impact on trade. Short-term, no impact. The problem is going to be later on impacts on investments and geopolitics that won't be all beneficial."

US LNG capacity doubling from current levels of about 84 million mt/year reflects US volumes rising to about one-third of global LNG supplies by 2030, according to S&P Global Commodity Insights analysts. But the recent moratorium announced by the White House has heightened risks to the US export outlook, analysts said, leading S&P Global to delay all expected final investment decisions in the US and in Mexico, where projects that will be supplied with US gas also need regulatory approvals.

"We estimate that the DOE pause on NFTA approvals puts nearly 30 million mt/year of probable US and Mexico LNG export capacity at risk," Ross Wyeno, director for LNG analytics at S&P Global, said.

S&P Global analysts, which had forecast projects in the US and Mexico amounting to 23.7 million mt/year of capacity would get commercially sanctioned in 2024, said all of those final investment decisions would get delayed at least until 2025.

One source of uncertainty is how long the freeze, expected to continue through the November election at least, will ultimately last.

The export licenses at issue authorize exports to countries that lack free trade agreements with the US, and they are critical for major US LNG projects to advance because they represent the lion's share of the global LNG import market.

The White House said the pause would last until the US Department of Energy can update the analyses it uses to determine whether granting a non-FTA export license to a project is in the public interest. The policy review will take a "hard look" at impacts of LNG exports on US energy costs, energy security and the environment, with an emphasis on climate change.

Senior officials announcing the pause said it would take months, followed by a public comment period.

"Maybe it just lasts a year; in the big scheme of things, a one-year delay to a handful of proposed LNG projects [is] not that big a deal," Ben Cahill, senior fellow at CSIS said at the Jan. 31 event. "If that's the only impact, then that's not fundamentally going to change flows."

The larger question, Cahill said "is what if marginal future supplies don't come from the United States. Will there be sufficient supply from other countries to meet global demand?"

A key question will be if some LNG buyers with long-term contracts tied to projects affected by the moratorium will turn to other suppliers, along with the response of trade allies. Rival projects in Qatar or in other places such as western Canada could benefit from the US regulatory uncertainty if LNG buyers choose to look elsewhere, analysts said.

Industry groups in Europe and Asia have criticized the White House decision, which was cheered by environmental groups who pushed for it.

The International Gas Union, an industry body representing all parts of the gas value chain, called the step by the world's largest LNG exporter a "troubling development." The pause threatens to restrict supply of flexible US LNG volumes that the world will need, with global supply remaining tight and the market vulnerable to more volatility and price spikes, the IGU said.

"The current dynamic we are seeing unfold is highly worrying," IGU Secretary General Menelaos Ydreos said Jan. 30. "It is eroding these fundamental market principles and will harm global energy security and emission reduction"

Akos Losz, a senior research associate at Columbia University's Center on Global Energy Policy, said in a Jan. 31 commentary that two assumptions appeared to inform the White House move. One, that the impact on global gas markets will be minimal. And two, that limiting the non-FTA approvals could be an effective tool in controlling greenhouse gas emissions associated with US supply.

"Both assumptions may turn out to be wrong, depending on what happens after the pause," Losz said.