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By Caleb Jasso [ [link removed] ]
On January 26, 2024, the U.S. Department of Energy (DOE) announced that it would be temporarily pausing its review of all liquified natural gas (LNG) export applications to non-free trade agreement countries [ [link removed] ]. DOE justified the pause by claiming that it needed to review, and possibly alter, the process for analyzing economic and environmental impacts of all future projects seeking approval for exporting to European and Asian markets. After many months of uncertainty and unclear direction from DOE, on July 1, 2024, Judge James Cain of the Federal District Court in Louisiana issued a preliminary injunction [ [link removed] ] against the temporary LNG permitting pause—upholding a stay request from 16 states. In the long term, however, the fate of the permitting pause may depend on the 2024 election results; in the event of a Harris presidency, the pause is likely to continue [ [link removed] ], while in the case of a Trump presidency it’s likely to cease.
In the meantime, Judge Cain’s ruling is good news because any continued pause on LNG permitting could have lasting negative effects on U.S. producers and consumers, and it may also have geopolitical consequences for the global market. This is especially true for the European nations that have increased their reliance on abundant and affordable American LNG as a substitute for Russian energy.
LNG Permitting and Exportation
The international demand for LNG is significant and growing. In 2023, the U.S. became the largest single contributor [ [link removed] ] to the LNG market, exporting more LNG than any other country in 2023 [ [link removed] ], with an average of 11.9 billion cubic feet per day.
This is unsurprising given that the U.S. has 4,032 trillion cubic feet of technically recoverable natural gas resources, a 130-year supply at the current consumption rate, as indicated by IER’s 2024 North American Energy Inventory [ [link removed] ]. However, there are “over 65 quadrillion cubic feet of in place natural gas resources in the U.S.,” just half of which, when it becomes recoverable through technical advancements or changing market conditions, would provide 1,000 years of natural gas supply at 2022 consumption rates.
There are more than 170 LNG facilities [ [link removed] ] in the U.S. serving various roles such as export, domestic distribution via pipelines and storage for emergencies. Regardless of primary use and location, the Federal Energy Regulatory Commission [ [link removed] ] (FERC) has authority over the construction of and permitting for LNG import or export facilities. FERC was granted this authority under the Natural Gas Act [ [link removed] ].
Additionally, according to the National Environmental Policy Act [ [link removed] ], FERC must evaluate the environmental impact of proposed LNG facilities that fall under its authority. This requirement is the primary justification DOE has used for its pause on LNG export permits. Rep. Clay Higgins [ [link removed] ] (R-La.), who opposes the permitting pause, cited the Natural Gas Act on May 23, 2024, at a hearing [ [link removed] ] by the U.S. House Committee on Oversight. Higgins argued that section 3(a) of the Natural Gas Act “clearly states that you shall issue permits unless you find that it is not in the public interest, which has not yet happened. And yet you have mandated a pause. You have not issued permits.” For this reason, Higgins and many other Republicans believe that the DOE should keep processing and approving applications until the agency can definitively prove it’s not in the public interest to do so.
As of today, the U.S. has eight active export terminals—seven on the East Coast and one terminal located in Kenai, Alaska [ [link removed] ]. In addition to these active export terminals, the Natural Gas Act [ [link removed] ] gives FERC the power to approve certificates for LNG facilities involved in transporting natural gas across state lines through pipelines.
Considering that currently there are only a few export terminals, and since the U.S. is already the world's top LNG exporter, it stands to reason that more export terminals would translate to more LNG available globally. This would likely lead to lower prices internationally and more income for American companies. Before the pause on export permits began, 17 new export terminals had been approved. Seven are now being built, and 10 more are waiting to start construction [ [link removed] ]. There are an additional five pending applications and two projects in pre-filing—these export terminals would be located throughout Texas and Louisiana [ [link removed] ].
Not only is the LNG permitting pause preventing the expansion of the LNG market, but it is also providing already-existing export terminals with an unfair advantage by protecting their share of the current market. The long-run unintended consequence of the permitting pause would be a less competitive market for LNG exports, which would hurt U.S. consumers and undermine American geopolitical goals.
Geopolitical Consequences
The permitting pause has caused considerable concern for both domestic exporters and international stakeholders. Before Russia invaded Eastern Ukraine in 2013, European countries relied on Ukrainian pipelines for 16% [ [link removed] ] of their natural gas, while at least 30% [ [link removed] ] of the 18.7 trillion cubic feet of natural gas Europe consumed that year was supplied by Russia. By making Europe heavily dependent on Russian natural gas, Russian President Vladimir Putin was able to mitigate and delay a continental, and global, response to his full-scale invasion of Ukraine in 2022. For this reason, on March 22, 2022, the EU-U.S. Task Force on Energy Security was formed with the primary intent of reducing European reliance on Russian energy, with a focus on natural gas supply diversification.
The EU significantly reduced its imports [ [link removed] ] of Russian LNG from 41% of total LNG imports in 2021 to approximately 8% in 2023 following the invasion and the ongoing war. This reduction was made possible by EU efforts to start importing more American LNG, which accounted for 46% [ [link removed] ] of all EU imports in 2023. The shared security interests of the U.S. and EU in reducing Russia's economic power, which has been a major factor in supporting its global influence, played a key role in the effort to fill the supply gap of European LNG with American resources. As part of this effort, sanctions were imposed on Russia to weaken its energy sector, a key source of economic support for Putin's actions in Ukraine. However, loopholes such as allowing for energy-related transactions [ [link removed] ] with sanctioned Russian banks have minimized the impact of the sanctions.
To further weaken Russia's wartime economy and increase the impact of sanctions, on June 12 the U.S. Treasury announced 300 additional sanctions [ [link removed] ]. These new sanctions more directly target Russian earnings from LNG [ [link removed] ], which include sanctions on companies such as Aktsionernoe Obshchestvo RusGazDobycha, which is building a natural gas processing and liquefaction facility; Arktik SPG 1, which is developing an LNG production site; and Limited Liability Company Obsky Gas Chemical Complex, which is involved in LNG production and processing. As these sanctions are new, it's still uncertain how effective they will be in the long run.
Given that European nations have worked diligently to significantly reduce their reliance on Russia for LNG, substituting it primarily with American LNG, European allies of the U.S. attest that the continued uncertainty of the future of American LNG exportation will ultimately come at Europe’s expense [ [link removed] ].
The U.S. has an abundance of LNG that has proven to be a vital tool in hard-power balancing [ [link removed] ] against Russian influence in Europe. Expanded access to American natural gas will provide the U.S. and its allies with highly coveted energy independence, which is crucial to long-term American national security. Given the combined economic and geopolitical benefits of increasing LNG exportation, it remains in the best interest of the U.S. to resume LNG export permitting and expanding natural gas drilling operations—a primary reason why the recent preliminary injunction by Judge Cain against the LNG export permitting pause is so important.
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