Impact on U.S. LNG Exports and Projects
The United States became the largest LNG exporter in the first half of 2022, driven by increased LNG export capacity, international natural gas prices, and global demand, particularly from Europe. In November 2023, the U.S. set a new record for LNG exports, reaching 386.2 billion cubic feet.
With approximately 90% of U.S. LNG heading to non-free trade agreement countries, the delay in licensing effectively stalls project development. Jason Gabelman, director of sustainability and energy transition at TD Cowen, suggests that LNG equities with operating facilities may not immediately benefit from the administration’s announcement until the impacts of export approval suspension become clearer.
Companies with government approvals that have not been sanctioned, such as NextDecade Corp.’s Rio Grande LNG export facility in Texas, could face challenges in attracting offtakers due to the politicization of LNG development. However, delays in project sanctions are expected to have a multi-year impact as LNG projects typically take around four years to build.
The administration’s announcement introduces the risk of stricter oversight that could limit future U.S. LNG capacity over four years from now. Nevertheless, U.S. LNG exports play a pivotal role in reducing global carbon emissions by displacing coal for electricity generation in countries like China and India.
Domestic Implications and Future Outlook
The pause in new LNG export permits is not anticipated to disrupt domestic natural gas supplies or prices significantly. However, the Energy Information Administration (EIA) acknowledges the uncertainty regarding how LNG export capacity affects domestic gas prices, consumption, and supply.
LNG prices and the construction rate of export terminals impact LNG export volumes, with higher exports potentially raising U.S. natural gas prices. Conversely, lower exports can exert downward pressure on prices. As of Friday, natural gas settled at $2.71 per million British thermal units, up 7.7% for the week.
Despite the pause, the United States is expected to maintain its position as the top global LNG exporter. The current U.S. LNG export capacity of nearly 12 billion cubic feet per day surpasses that of Qatar, its closest competitor. Although Qatar is expanding its export capacity, the U.S. is projected to retain its position due to anticipated growth in LNG export capacity.