What does the future hold for global LNG supplies after Biden's decision?

Live Updates: Follow the latest news on Israel-Gaza

The next decade of LNG appears to be on the right track, after the chaos of 2022.

The expansion of global production will be led by the United States, Qatar, and some African countries, and Europe will continue to shift to LNG to complete its escape from Russia, while China and other Asian countries seek LNG to fuel their economies, replace coal, and supplement renewable energy sources. .

Now the administration of President Joe Biden in the United States has thrown a spanner into the works.

The continuing increase in US shale gas has transformed the country into the world's largest exporter of liquefied natural gas (LNG) until 2015.

However, despite concerns from some gas consumers when the first LNG export terminals were improved, production has managed not only to keep up with demand, but to move ahead.

Aside from a spike in 2022, domestic prices have remained low, at about $2.50 per mmBtu since 2012 — the equivalent of about $15 per barrel of oil.

Adjusted for inflation, U.S. gas has never been this cheap on an annual average basis throughout the national price history since 1989.

The lure of transporting inexpensive US gas to hungry, higher-paying consumers in Europe and East Asia has spurred the recent wave of LNG export proposals.

Projections indicate that the United States could have 160 million tons of annual export capacity by 2027, ahead of enlarged Qatar's 127 million tons, and well ahead of former leader Australia at about 90 million tons.

Now comes the key. The US Department of Energy is scheduled to examine new projects in terms of their impact on the environment, after reconsidering its methodology, especially the effects resulting from the leakage of methane gas, which causes global warming, and is the main component of natural gas.

Whatever the technical details, this decision is very popular with the environmental wing of the Democratic Party, but it does not constitute good news for either climate or energy security around the world.

The new reviews will not halt current LNG exports of 90 million tons per year, nor projects under construction that could double that.

As my colleague at the Columbia Center on Global Energy Policy, Akos Los, notes, the projects most directly affected are those that have signed some sales contracts but have not yet made a final investment decision.

There are five of them, three in Louisiana and two in Texas, with a total of about 60 million tons of intended annual capacity. Three of them are extensions of existing factories, while two of them are new.

If reviews are prolonged or if some projects are rejected, this would cast a shadow over future investments. Commonwealth LNG has been waiting four years for approval, while the license for a project in Louisiana by Transmission Energy will expire if it cannot start construction soon.

On the other hand, projects already underway, such as the Texas LNG project, may receive attention.

One of the companies involved in the expansion, Venture Global, is already embroiled in a legal battle with several European customers, who claim it broke delivery contracts for them on false grounds so it could resell them at higher prices elsewhere.

Whatever the legalities, this does not give US LNG a reliable reputation. The new reviews and sense of a volatile policy-making environment in Washington are a more general problem.

A delay, which could turn into an outright ban, is not good for the climate, whatever environmental activists may think. There should be plenty of LNG on the market by late 2020.

So the real impact of any disruption will be on supply in the early to mid-2030s, when coal disappears from the global energy system.

That could be good news for rivals to the US LNG powerhouse, including the United Arab Emirates, which is moving forward with building a large new export plant in Ruwais, as well as Canada and several African countries.

The decline in LNG may be partly replaced by more renewables, but renewable energy is already expanding as quickly as practically possible in many places. In emerging Asian economies, renewable energy sources are not suitable for home heating, cooking or heavy industry.

When countries like Pakistan were unable to find affordable LNG in 2022, they returned to polluting heavy fuel oil and coal. The same is true in the long term for China, India, Bangladesh, Indonesia, Vietnam and other Asian giants.

The timing is particularly bad for two reasons.

First, with the presidential election approaching in November, Europeans and other US allies are wondering whether they will see the return of Donald Trump – bringing more tariffs, a possible abandonment of Ukraine, perhaps a US withdrawal from NATO, and who knows what. What are the other steps? Geopolitical and geoeconomic chaos.

But in practical terms, the continued influx of “America First” economics that a second Biden term would bring is not very welcome either.

One example is the ill-advised decision to review the purchase of US Steel, the country's fourth-largest steelmaker, by Nippon Steel, of Japan, a close American ally.

This is reminiscent of the campaign against Dubai Ports' purchase of US facilities in 2006, which faced similarly meaningless xenophobic national security objections.

The United States' generous subsidies under the Inflation Reduction Act for new energy manufacturing, and its attempts to secure raw materials through self-sufficiency rather than cooperation with partners, make life difficult for more competitive companies elsewhere.

This delays low-carbon plans. Reducing LNG in the United States would look like a policy to starve struggling European industries of energy.

Second, attacks by Houthi forces on ships in the Red Sea continue to escalate. US and British air strikes have not deterred them so far.

On Friday, a British tanker carrying Russian oil – which was expected to be safe – was hit by a missile and set on fire. Qatar began directing liquefied natural gas shipments to Europe around Africa.

The threat to maritime transit through the Red Sea may not continue. But if that happens, it would strengthen the case for Europe relying primarily on LNG from the United States.

If the war in Ukraine eventually turns into a frozen conflict, those promoting calm in European capitals from Brussels to Berlin to Budapest may return to relying on Russian gas.

The US gas and LNG industry needs to improve its behavior – stopping gas flaring and methane leaks, reducing emissions from ships, running LNG plants with clean electricity, and controlling carbon capture and storage.

Some new projects follow such approaches. US rivals will be happy if misguided environmental enthusiasm cripples the world's leading liquefied natural gas industry.

Robin M. Mills is CEO of Qamar Energy and author of The Oil Crisis Myth

Updated: January 29, 2024 at 3:00 AM