Climate campaigners rejoiced last week when US President Joe Biden froze approvals for new liquefied natural gas terminals that export the fuel.
But the White House hopes that the “pause” in LNG permitting will win it political kudos with a much bigger group: American consumers worried about the price of heating and electricity.
“We will take a hard look at the effects of LNG exports on energy costs, America’s energy security, and our environment,” the president said in announcing the halt, which will stop progress for at least 17 export projects awaiting authorisation while the US Department of Energy undertakes a review of its approval processes.
The US has over the past eight years become the world’s largest exporter of LNG, as developers built projects along the Gulf and Atlantic coasts to funnel the country’s sudden bounty of shale gas into oceangoing vessels.
The US’s seven operating terminals can now produce as much as 87mn tonnes of LNG a year — enough to satisfy the combined gas needs of Germany and France — and five more projects already approved and under construction will add another 63mn tonnes of capacity.
With yet more projects still in line for approval, climate activists set their sights on the multibillion-dollar industrial sites as charged symbols of fossil fuels. But unlike opposition to oil pipelines and drilling that the energy industry often blames for higher petrol prices, they argued that limiting LNG exports could lower fuel costs for US households.
“The most elemental economic analysis will tell you that if you’re exporting a lot of something, the prices are going to go up for people back home,” said Bill McKibben, co-founder of 350.org, a climate campaign group, who was one of the most vocal advocates of the freeze. “Very few Americans are eager to have their country fracked in order to sell cheap gas to China.”
The focus on costs comes as Biden’s approval ratings continue to suffer from inflation that soared during the coronavirus pandemic. The consumer price index was 3.4 per cent in December, well above policymakers’ long-term targets.
Before Cheniere Energy sent out the first ship full of condensed shale gas in 2016, there were significant fears that the trade would drive up domestic gas prices, prompting a flurry of studies into the subject.
The first of these, released in 2012, suggested that over the two decades from 2015 to 2035, LNG exports would add 3-9 per cent to consumers’ gas bills and between 1-3 per cent to electricity bills, depending on the volume and pace of exports. Further studies were carried out in 2015 and 2018.
But the studies generally concluded that the impact of rising exports on US prices would be limited. That has proven to be the case: prices in the Henry Hub market alongside the Louisiana coast averaged $3.37 a million British thermal unit in the seven years since 2016, compared with $3.48 in the seven years beforehand, according to the Energy Information Administration.
“If they do what was done twice in the last decade of looking at exports and seeing whether they have harmed America’s energy security or driven up costs for American consumers, they will find out that which is patently obvious to everyone, which is we have so much energy security we are exporting it to other countries,” said Jason Bennett, a partner at law firm Baker Botts.
The rapid growth of the export industry has also provided an outlet for US gas as production breaks records.
“LNG exports offtake provide actually a couple of useful benefits for the US — one is that it makes it easier to produce oil in gassy formations, because it gives the gas a place to go,” said Kevin Book at ClearView Energy Partners, a Washington consultancy.
There is nevertheless some domestic concern about the effects of shipping gas abroad. “More exports equal more reliability and price risk,” said Paul Cicio, president of the Industrial Energy Consumers of America, which represents manufacturing companies.
He pointed to the fallout from a brutal winter storm in 2021 that drove a surge in demand, sending Henry Hub prices briefly to more than $12/million Btu.
“It is a real serious problem when US natural gas inventories are low during the winter months, because in the winter months we have peak demand due to the weather. And so if you add on top of that accelerating increases in exports . . . that peak gets bigger and bigger with time,” Cicio said.
Other industry groups condemned Biden’s move — not only oil and gas producers but also the American Gas Association, a trade group for utilities that deliver fuel to end consumers. A coalition of business groups from the US, Europe and Japan urged Biden to reconsider his decision.
Biden is not the first president to declare an export licence hiatus: Barack Obama, under whom Biden served as vice-president, previously paused approvals from 2012 to 2014.
James Lucier, an analyst at Capital Alpha Partners, said that once the current study and public comments are taken into account, it is possible that no new licenses will be issued until after May 2025.
“This pause in permitting is less about policy than campaign politics, since delay allows Biden put off a showdown between strident supporters on both sides of the issue,” said Paul Bledsoe, a former climate adviser to the Bill Clinton administration.
“But I still expect at least some new permits to be granted if Biden wins a second term, because the totality of the security, climate and economic evidence will likely be in favour of permitting even under a new set of more rigorous standards.”
Source: Economy - ft.com
