Only a month into 2024, all signs point to this year being particularly consequential for the future of U.S oil and natural gas. On one hand, the International Energy Agency’s latest industry report projected increased global natural gas demand in 2024. At the same time, President Biden’s decision to pause LNG exports approvals has created a wave of negative reactions across the political spectrum and enhanced uncertainty within the energy industry.
What does President Biden’s decision mean for the industry’s long-term future, and how might it reshape U.S. energy production and markets? Many energy industry executives agree that this move indicates market uncertainty, volatility, mixed signals, and even potential job losses.
It’s important to remember that LNG infrastructure involves massive, capital-intensive projects that take years to come online. Consequently, LNG is generally bought and sold using long-term (up to 20-30 year) contracts. This ensures supply security and protects buyers and sellers against price volatility and seasonality. This year’s winter storage is well-supplied because governments and companies signed contracts with LNG suppliers years ago. More importantly, the transport, liquification, cooling, and export infrastructure necessary to deliver LNG to countries facing acute energy shortages was financed, permitted, and constructed well before the crisis hit.
Disruptions to the U.S.’s LNG export capacity now can damage both investment and confidence in U.S. LNG for decades to come, with impacts that extend far beyond one Presidential administration or one election cycle.
Companies have said as much when reacting to the Biden administration’s short-sighted LNG export pause. During a House Energy and Commerce Subcommittee hearing this week on the risks associated with the administration’s decision, Toby Rice – CEO of EQT, the largest producer of natural gas in the country – said the move sends a negative signal to employers and investors:
“It’s actually disruptive. These facilities require billions of dollars of investments to make happen. And any sign that there’s going to be political force introduced into market forces is going to make it very difficult to invest.” (emphasis added)
Oil majors expressed similar concern during annual earnings announcements last week. During Shell’s earnings call last Friday, the U.K.-based oil major’s CEO, Wael Sawan, said that the recent U.S. government decision to pause approvals of new LNG export terminals and the massive shipping disruptions in the Red Sea are evidence that 2024 will be “a continued year of uncertainty and volatility.” Sawan spoke disapprovingly of permit delays and the White House’s decision:
“But also it starts to undermine the confidence in U.S. LNG for the longer term – something, which of course, with the recent announcement of the pause by the government, by the U.S. administration, just continue all to erode that confidence in the longer-term potential of U.S. LNG, which is a real shame, I think, given the potential it has.” (emphasis added)
Enbridge, a major Canadian pipeline company, shared a similarly grim attitude towards President Biden’s sudden shift in energy policy and foreign policy. Enbridge supplies fifteen percent of LNG export capacity in the Gulf Coast and has shared plans to double that figure by 2030. The export pause puts developing projects and jobs at risk:
“Our immediate view is any delay in the development of U.S. liquified natural gas is a loss for the U.S., our Allies, for U.S. jobs and for efforts to cut emissions around the world…”
If allies lose confidence in the reliability of U.S. LNG supply, they will simply turn to other suppliers to meet growing demand, as the CEO of Baker Hughes pointed out. A spokesperson for Venture Global, the company perhaps most impacted by the LNG export pause, likened the move to an economic sanction that sends “a devastating signal to allies that they can no longer rely on the United States.”
While the U.S. is the world’s number one natural gas exporter, it achieved that status in a relatively short time period and is not immune to competition from other exporting countries like Qatar and Australia. Giles Farrer, head of LNG research at Wood Mackenzie, told Vox that U.S. regulatory uncertainty “provides impetus for competing projects.”
A recent Wall Street Journal editorial made similar points, arguing that the White House’s decision will promote uncertainty in the market and reduce confidence in American energy policy:
“The Administration is deliberately creating uncertainty about permit approvals and extensions to chill investment and discourage foreign governments from signing long-term contracts. Why risk investing in or signing a purchase agreement with a Gulf Coast project that may later be killed? Smarter to link up with the Qataris. That’s what some are already doing.”
The momentum is already shifting in competitors’ favor. In just the last week since the pause was announced, Qatar’s state-owned petroleum company signed major LNG deals with India’s state-owned energy company and Japanese conglomerate Mitsui, and is in advanced talks with Brazil’s state owned oil company for a long-term LNG agreement.
Bottom Line: The consequences of President Biden’s politically-motivated “pause” on LNG exports won’t be fully understood for months, or even years. The White House is making a mistake in risking the country’s status as the world’s premier trading partner for an election-year gambit to appease environmental activists.
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