Mon, Jun 17 2024 17 June, 2024

New wave of U.S. LNG could be delayed by Biden

There is commercial momentum for another half dozen U.S. LNG projects, according to analysts. But environmental groups are ratcheting up the pressure on President Biden to halt new permits.

People fishing and walking besides the shipping channel from the Gulf of Mexico to Corpus Christi, Texas (Photo credit: Adobe Stock/scandamerican)

The U.S. became the world’s largest exporter of LNG in 2023, surpassing Qatar and Australia.

Over the course of the year, the U.S. exported around 86 million tonnes of LNG, according to Rapidan Energy Group, a Washington-based energy research firm. Both Qatar and Australia exported around 80 million tonnes.

The repair and return-to-service of Texas-based Freeport LNG, a facility that suffered an explosion and lengthy outage in 2022, combined with the added exports of a full-year of operations from Venture Global’s Calcasieu Pass, were enough to push the U.S. into the top spot, according to Alex Munton, director of global gas service at Rapidan Energy.

“Those two projects operating a kind of high utilization were the real drivers of U.S. export growth. There were no new facilities starting up. It was just the benefit of high utilization,” Munton told Gas Outlook.

Looking forward, there will be little new capacity coming online this year, but several projects are approaching the finish line. ExxonMobil and QatarEnergy’s Golden Pass LNG facility in Texas will finish construction by the end of the year, and begin operation in 2025. Cheniere Energy’s Corpus Christi Stage 3 may come online by the end of 2024, and Venture Global’s Plaquemines LNG Phase 1 also says it will start operations this year, although it may not actually come online until 2025, Munton said.

“Next year, we’ll see a big step up” in supply, he added.

While those projects are nearing completion, some analysts believe that LNG developers may issue the go-ahead on yet another wave of LNG this year. As many as six LNG projects could receive final investment decisions in 2024, according to a December note to clients by the Washington-based energy consulting firm, Clearview Energy Partners LLC.

That list includes four projects in Louisiana — Delfin Floating LNG, Commonwealth LNG, Calcasieu Pass 2, and Cameron LNG Phase 2 — as well as Port Arthur Phase 2 and Texas LNG, both located in Texas. Clearview added that three other projects have the potential to receive FID next year — Lake Charles LNG, Driftwood LNG, and Magnolia LNG.

However, several of these projects face significant headwinds. Driftwood LNG is in financial turmoil, having recently ousted its CEO following warnings to investors of a growing risk of insolvency. Commonwealth LNG still has not received its certification from the U.S. Department of Energy (DOE), which may have delayed the project’s ability to secure funding, according to Clearview Energy Partners. Calcasieu Pass 2 is also awaiting the DOE certificate. Port Arthur LNG’s Phase 2 saw an environmental permit tossed out by a federal court, delaying progress on that project. Lake Charles LNG saw its application for an extension denied last year by DOE and has to restart the process.

Some of these projects hoping to reach FID have been “possible FIDs for a long time,” said Ira Joseph, a senior research associate at the Center on Global Energy Policy at Columbia University. “Not all projects are equal.”

Joseph said he was not inclined to put a specific number on how many FIDs would be achieved this year, but suggested that Saguaro LNG probably deserves to be on the list, having secured enough buyers for the first two phases of the project. Saguaro LNG is located on Mexico’s Pacific Coast, but would export Permian gas from Texas.

“That’s another important one because the first two trains of that are pretty much sold out,” Joseph said.

Pressure on Biden to pause U.S. LNG

While there may be five or six projects that have real “commercial momentum,” the “showstopper” for most of those, at least in the short run, may be regulatory delays, Munton said.

“This is where there is a significant under-appreciated risk,” he said.

A growing coalition of national environmental groups and local community groups in Texas and Louisiana are amping up the pressure on the Biden administration to reject new U.S. LNG projects. President Biden is not faring well in election polls, some of which show him trailing his Republican rivals. As such, Biden can ill-afford to alienate his electoral base, which is demanding stronger action on climate change. He already burned some goodwill a year ago when he approved the Willow project, a highly controversial oil project in the Arctic, backed by ConocoPhillips.

Environmental groups are explicitly making the DOE regulatory process on new LNG projects something of a test for Biden. Approve new projects, and he risks losing even more voter enthusiasm, especially from young voters, environmental groups argue. By rejecting LNG, he can credibly claim he is slowing the growth of the fossil fuel industry while also helping to fire up his supporters.

In the past, these certificates from DOE — affirming that exporting LNG to countries that don’t have a free-trade agreement with the U.S. is in the “public interest” — have always been quietly approved, even if the industry was not happy with how long the review process took.

Munton said the campaign by environmental groups is “a very targeted” campaign. While opposing new LNG broadly, they are singling out one particular LNG project — Venture Global’s CP2 LNG site in Louisiana, which is something of a sequel to its existing Calcasieu Pass facility next door.

CP2 has checked most of the other necessary boxes, aside from a certificate from DOE, Munton said. The project has secured buyers overseas for roughly half of the total 20 mtpa capacity. It has an engineering contract in place to build the facility. And it is sitting on cash reserves that can help with financing.

“Really, what it boils down to is this: The only thing stopping CP2 moving to full construction is the permits. And without those they can’t move forward,” Munton said. “And so, this is where the battle is concentrated at the moment, and it’s a battle the like of which we’ve never seen. There has always been opposition to LNG developments in the U.S., really from day one. But never at this level. Never this sort of high-profile.”

The pressure appears to be having an impact. Late last year, a group of more than 60 Democrats in Congress signed a letter, calling on the Biden administration to impose stricter parameters on approving new LNG projects.

Recent reporting suggests that the White House is starting to listen, and the pressure from environmental groups has been covered widely by major national media outlets in recent weeks.

But Munton said that many industry analysts are overlooking the growing risk of regulatory blowback, particularly as the election season gets underway.

“Our view is that the Biden Administration right now is not ready or doesn’t feel comfortable issuing those permits,” Munton said. “We think that they will essentially sit on these applications until after the election.”

He said that the five or six LNG projects that are nearing final investment decisions may not achieve that milestone until sometime after 2024.

“There’s a lot riding on this election,” Munton said.

In a separate report, ClearView Energy Partners likened the steadily rising pressure on the Biden administration from environmental groups to the infamous Keystone XL pipeline, which became a national flashpoint, and was ultimately killed off by President Biden during his first days in office.

ClearView said that news that Biden administration officials met recently to discuss the review process for LNG “creates a possibility the Administration might pursue a new study, and potentially one with new climate parameters.” 

Studying the issue, of course, would take time. “In this scenario, we think the DOE could elect to suspend non-FTA authorizations until the study was finished, which could delay decisions by six months or longer (read: beyond the election),” the firm said.

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