US LNG Exports: A Whimsical Pause?

On January 26, the Biden administration announced it would pause new approvals of liquefied natural gas (LNG) exports. This is a relatively new wrinkle in a developing industry in the US. Not long ago the US exported small quantities of LNG, and it wasn't until 2015 that there was a serious increase in export availabilities and volumes.

Although exporting large volumes of LNG is fairly recent, the legal complex is not. Congress passed the Natural Gas Act (NGA) in 1938, so the statute was on the books before the Department of Energy (DOE) was established in 1977. Under the NGA, the DOE must approve any import or export of natural gas.

We have already seen examples of capricious policies in action. In February 2022, the Federal Energy Regulatory Commission (FERC) issued new policy statements “providing guidance for future consideration of natural gas projects by the Commission.” The policy implies that an undefined level of easing negative climate effects is necessary and in the public interest to get FERC approval for gas and pipeline projects. This is a large grey zone of unspecified uncertainty, and not the basis from which to model investments or contracts to buy product.

Given recent history, it looks like uncertainty from the DOE, NGA, and FERC is the goal of energy policy rather than its side effect. With the EU pivoting away from obtaining their supply from next door in favor of shipping it in from the US, these policy peccadilloes do matter, as does clarity.

The White House mentioned “potential energy cost increases for American consumers and manufacturers” as one inflation-fighting justification for the LNG pause. There is truth in that with the US Government restricting the export of natural gas, will probably cause the US domestic price to fall, but the long-term effect will be quite the opposite.

Any such restrictions on the sale of LNG going to world markets will have actual follow-on effects up the supply chain, reducing the incentives to explore more natural gas or even to produce what’s already been found, not to mention some predictability in price.

The DOE, EPA, and FERC can attempt to slow the development of the US natural gas industry under the general banner of climate change, but the energy demand will always be there. Globally, energy consumption continues to increase, and such measures as the limitation of development simply place a thumb on the scale of end-user price, LNG availability, and further open global market doors for non-US players. Yet another 'own goal' or just whimsical caprice?