Collateral Impacts of the LNG Freeze

Mark Green
Posted April 4, 2024

Truth and Consequence: The Biden administration’s decision to stop authorizing new and pending liquified natural gas (LNG) export permits to non-Free Trade Agreement countries is surely a factor among many in Qatar’s move to charter 19 LNG carriers as it ramps up output.

Call that a truth – logical and not unexpected – with the world’s No. 3 LNG exporter perhaps looking to fill any market gap that Washington's decision might create. As for the consequence, it’s no surprise that American farmers, who receive royalty payments for leasing acreages to natural gas companies, are looking on with great concern.

Policy Matters: Both illustrate there are wide impacts from policy decisions made in Washington. While it’s unclear whether Qatar suddenly decided to increase its LNG volumes when President Biden issued his LNG pause, the administration’s action certainly created a market opportunity that other LNG suppliers could seize.

The View From Qatar: Bloomberg reports Qatar needs more LNG carriers because it is raising annual production from its North Field, the world’s biggest natural gas field, to 142 million tons by 2030 – up from 77 million tons currently. Bloomberg (bold and underline ours):

“In doing so, the small Middle Eastern nation is set to re-establish its dominance of the global LNG market. Projects in Australia and the US have eroded its supremacy in recent years to the point where all three countries export roughly the same. However, the US recently imposed a temporary freeze on permits for new projects and Qatar’s investments in its new facilities has put it on course to take the lead again.”

Down On The Farm: Meanwhile, many probably forgot that a key domestic benefit of increased natural gas production – that supplies American families and businesses and supports U.S. allies – is the benefit to American farmers who lease out the minerals (natural gas) on their lands.

For example, just last year in Pennsylvania and Ohio hundreds of millions of dollars went to farmers and landowners who hold those leases, according to a report by Salena Zito, CNN political analyst and Washington Examiner columnist.

The article noted a survey by the American Exploration and Production Council of its members in those states – representing 93% of all Pennsylvania natural gas production and 68% of all Ohio natural gas production – estimating that LNG exports generated more than $193 million in royalties paid to Pennsylvania families in 2023 and $181 million in royalties paid to Ohioans. (The survey does not include taxes, fees and charitable contributions.)

Bottom Line: The administration’s publicly stated LNG concerns – domestic natural gas prices, global market balance and emissions – used to justify the LNG freeze, collapse under scrutiny:

• Prices – Americans have benefited from among the lowest residential natural gas prices in the world – even as the U.S. began sending some homegrown LNG to our global allies. A study found that over the past decade, average U.S. Henry Hub natural gas prices were 54% lower than in the decade before it. Even as America reached a record level of LNG exports over the first six months of 2023, U.S. natural gas prices were at the lowest six-month average in more than 35 years (outside the COVID-19 pandemic).
• Markets – During a Senate hearing in February, David Turk, U.S. Energy Department deputy secretary, defended the administration’s concern over how fast U.S. LNG capacity has grown and might grow in the future, with some experts projecting a peak in global natural gas demand. The angst is misplaced and suggests a fundamental misunderstanding of markets and private investment. LNG projects go forward when there are contracts in place for LNG buyers. It’s the role of businesses, not governments, to assess demand and supply and invest in projects accordingly. Tellingly, while U.S. LNG approvals are on hold, other natural gas-exporting countries continue to expand their capacity to meet growing global demand.
• Environment – The increased use of natural gas is a leading reason U.S. power sector carbon dioxide (CO₂) emissions are near generational lows. Switching from coal to natural gas to fuel power generation is responsible for more than 60% of the CO₂ emissions from that sector since 2005. On the environment, Washington should see these kinds of environmental benefits as exportable through American LNG, helping other nations achieve similar emissions reductions.

In the end, American LNG should be seen as a strategic, national asset that supports U.S. energy leadership – not a political football that Washington can punt around to please certain voting constituencies.

The LNG America sends abroad strengthens the security of allies, a fundamental good that White House Climate Envoy John Podesta underscored at CERAWeek last month. In a world that often is chaotic, the stability of America’s overseas allies is connected to our own security.

The Dallas Morning News gets the last word – an editorial in which the newspaper criticized damage done to America’s global relationships by the administration’s LNG freeze:

“The result of this ‘pause’ has actually been a less secure energy future for a world that needs reliable fuel from the United States at a time when too many authoritarian regimes are using energy as a weapon. …  The energy the U.S. doesn’t export will likely be replaced by energy drawn from less regulated sources. There won’t be a decrease in global energy demand because the U.S. stops shipping natural gas. … Playing to a political base over such an important resource is a mistake that will have far-reaching consequences.”