Four months after the Biden’s administration decided to pause permitting approval for LNG exports, experts have continued to emphasize the policy’s damaging effects on the American economy and allies’ energy security.
Speaking this month at the Qatar Economic Forum in Doha, Ken Griffin, CEO of hedge fund Citadel, said that the decision was an “incoherent” economic policy, observing that the decision has diminished allies’ confidence in the U.S. LNG industry’s ability to reliably fulfill growing demand.
Geopolitical Standing
The pause has potentially impacted the United States’ standing abroad, as E.U. countries have been forced to examine all options for maintaining energy security, including the continued use of Russian gas.
Although the flow of Russian gas to the European continent by pipeline has massively decreased since Russia’s invasion of Ukraine, volumes of Russian LNG entering European ports have increased. Several E.U. member countries are pressuring the bloc to enact a total ban on Russian LNG, but the E.U.’s energy regulator cautioned that the region must take “gradual steps.”
The major factor impacting the E.U.’s ability to cut off Russian gas altogether is the availability of affordable alternative supplies from other exporters. While U.S. LNG initially stepped in to fill that void, the LNG export permitting freeze may prompt allied countries to turn to other suppliers.
For instance, Qatar has ramped up its natural gas production since the LNG pause was announced, and is now aiming to increase LNG supply by 85 percent from current production levels by the end of the decade. In a marked contrast to U.S. regulators, Qatar’s Minister of State for Energy Affairs recently disclosed the state-owned energy company’s plans to rapidly expand LNG production.
Even if the LNG export pause only affects specific facilities for a discrete period of time, the policy move has ripple effects that diminish the trust and confidence allied countries place in American energy. As Pawel Michalcyzk, Director for North America Energy and Industrial at Fitch Ratings, said:
“There may be a long-term impact if this pause goes on longer than a year… Other countries could benefit in the very long term if there’s a loss of trust in US LNG exports.”
Ultimately, the LNG export pause has deepened Europe’s energy security crisis. Forcing Europe to look for other suppliers reduces buyers’ ability to negotiate on prices, environmental policies, and safety standards. It also risks returning the E.U. to a position of overexposure to a single supplier, as Ogan Kose, Managing Director at Accenture explained:
“Europe risks being dependent on one supplier and ultimately at the mercy of the prices they set.”
Policymakers in the U.K. and the E.U. have echoed this sentiment, including Craig Mackinlay, a Member of U.K. Parliament:
“Current US supply cannot keep pace with European demand. A generational opportunity for a strong western energy partnership would be lost.”
Environmental Implications
The White House relied on a single source of controversial research to justify the LNG export permitting pause, overlooking the vast body of data showing that energy sourced from LNG is a lower-emissions alternative to energy from coal. In fact, LNG emits 40 percent less carbon emissions than coal.
Moreover, U.S. LNG has a lower emission profile than gas produced by other countries. A recent report by the Berkeley Research Group shows that U.S. gas supplied releases less carbon emissions than gas provided by alternative suppliers and is much lower compared with coal, the major competing fuel source in both Europe and Asia:
“GHG emissions intensity of US LNG in 2022 was less than 50 per cent of coal in both Europe and Asia and lower than pipeline gas imported from Algeria, Russia, and Turkmenistan.”
These findings have also been supported by research from the Department of Energy’s National Energy Technology Laboratory which found that U.S. LNG exports for electricity generation in Europe would not increase GHG emissions from a life cycle perspective compared to regional coal production for power generation.
However, if the availability of U.S. LNG is constrained and contracts from other suppliers are prohibitively expensive, European states could be left with no choice but to turn to coal to ensure their growing energy demands are met.
Bottom Line: In a period of geopolitical instability, American natural gas has proved to be a pivotal tool in international relations and economic security. Biden’s pause on LNG export permitting approval has continued to baffle experts as market instability, geopolitical conflict, and emissions data show that America’s allies and the country’s standing on the global stage are worse off without reliable U.S. LNG.
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