Biden’s LNG crackdown won’t hurt the fossil fuel industry much

The Biden administration said it was suspending new licenses while it updates its approval criteria to better account for projects’ climate impact, among other factors, Energy Secretary Jennifer Granholm told reporters. She didn’t elaborate on how long the hiatus may last, or what specific new criteria the Department of Energy will evaluate. The policy change won’t affect existing terminals or reduce U.S. LNG exports.

There are 17 LNG terminals in the U.S. that are under various early stages of development but have not received final investment commitments, in addition to 15 that are either operational or under construction. Of the 17, only four that are currently awaiting approval from DOE are immediately impacted by the policy change. That list does not include Calcasieu Pass 2, a large proposed project in Louisiana that has been fiercely opposed by environmentalists. CP2 is awaiting approval from other federal agencies and has not yet reached DOE, and its application will move ahead until it reaches that stage, DOE officials said.

Fossil fuel groups bullish about future demand castigated the permitting pause: In a statement, Mike Sommers, CEO of the American Petroleum Institute trade group, called it “a win for Russia and a loss for American allies, U.S. jobs and global climate progress.”

The tension inherent in the Biden administration decision is vexing: Underinvestment in the name of climate action could lead to supply shortages and price spikes that feed a public backlash against clean energy. But overinvestment means locking in large sources of carbon emissions — if all the proposed U.S. LNG terminals were built, their cumulative carbon footprint would be larger than that of the European Union — and leaving investors out to dry.

But in reality, the biggest threat to U.S. LNG’s desperate race to seize market share isn’t climate activists, it’s competition from rival exporters like Qatar and Australia. Few of the proposed projects are likely to lock in their final investment commitments regardless of what the Biden administration does, analysts say, because there are more under development than what the global market is likely to require in the coming decades. If every global LNG project under consideration now were to be built, the market would be oversupplied by 2028 and for the foreseeable future after that, according to research firm Rystad Energy.

Yet without any of those projects, the market could be severely undersupplied by 2030. The exact size of that gap depends on the speed of renewable energy adoption, especially in China and other Asian countries that are the heart of the LNG market right now. There is room for more cooks in the kitchen, in other words, but only a few. So even a short delay in permitting — until Donald Trump potentially takes office a second time, for example — could be enough to kill many projects.

“When we hit a supply glut, which we expect by 2025 regardless of the approval process, new contract signing will slow significantly,” Samantha Dart, head of natural-gas research at Goldman Sachs, told me. “The window of opportunity for more final investment decisions to be reached is about to close.”

In Europe, which emerged as a lucrative new market for U.S. LNG exporters after the shutdown of pipeline gas deliveries from Russia, the window may be closed already. Europe’s gas storage units are more than half full with winter nearly over, a sign that the market was able to quickly pivot from Russia and is now well supplied. Growth in demand there is unlikely, Rystad gas analyst Ademiju Allen said.

All of this makes LNG a relatively easy target for Biden, who can shore up support from climate-conscious voters without needing to forcefully interfere with the fossil fuel market. And it makes climate activists’ game of fossil fuel project whack-a-mole a lot easier: they just need to run down the clock, and let the market do the rest.

The biggest wild card in this is China, which is the world’s top LNG importer and is expected to double its imports by 2030. U.S. exporters are already stepping up their dealmaking with China, but they face stiff competition from Qatar, which has already locked in a series of the long-term supply deals that are crucial for LNG project financing. Other buyers in Asia are more tenuous: South Asian countries like Pakistan and Bangladesh turned to LNG to displace their reliance on coal, but then found themselves in the cold when they got outbid on the spot market by Europe. That has soured some politicians in the region against too heavy a reliance on LNG, Allen said. In Japan, meanwhile, LNG imports in 2023 hit a 14-year low as the country pivoted more quickly to nuclear and renewables.