On April 2^nd, 2024, Reuters reported White House officials were open to ending the pause on approvals of liquefied natural gas (LNG) exports to obtain Republican support to get a Ukraine aid package as part of the $95 billion bipartisan national security agreement. The White House has labeled this development as ‘hypothetical,’ but if true, it inevitably casts doubt on the rationale behind the initial decision to pause. Regardless of the underlying motives and political maneuvers, it is important to evaluate the short-term and long-term market, commercial, and strategic ramifications for U.S. LNG. Despite the considerable attention paid to the political, market, and commercial ramifications of the pause, its actual immediate impact on the U.S. LNG export outlook will be insignificant, particularly if the pause is lifted in 1H 2025. A longer term-pause (which we believe is unlikely), may have a significant impact on domestic and global gas dynamics.

The Pause

Two key regulatory risks arise from the pause. The first pertains to delays in Department of Energy (DOE) granted permits necessary for U.S. LNG projects for exporting LNG to countries lacking a Free Trade Agreement (FTA) with the U.S. This is important because FTAs are not in place for most of the key LNG importing countries in Asia and Europe. Hence obtaining DOE’s non-FTA permit is a pre-requisite for LNG projects to raise financing and sanctioning. The second aspect is the requirement for Projects to start exports within 7 years of obtaining the permit. The concern here is the precedent set by DOE when it rejected Lake Charles LNG’s permit extension in 2023. According to DOE, Lake Charles LNG failed to establish grounds for extension. The ambiguity in permit extensions further elevates the regulatory approval risks.

Implications of Shorter-term Pause

Several LNG export projects in the U.S. are in various stages of development that will “theoretically” be impacted by this pause. As of April 2024, ~86 Million tones per annum (MTPA) of LNG export project capacity (or equivalent to ~12.5 Bcf/d) is awaiting Non-FTA export approvals from the DOE and therefore the pause will potentially cause delays for these projects as shown below.

However, only a small fraction of export capacity (~20 MTPA or ~ 3Bcf/d) has demonstrated commercial progress by securing long-term commitments from credit-worthy entities covering 85-90% of project capacity and therefore financeable. In other words, ~3 Bcf/d of export capacity would have taken a positive investment decision in 2024 if not for the pause. So, assuming the LNG pause is lifted in 1H 2025, these projects may be delayed by a year or so shifting LNG volume growth slightly to the right. Likewise, the regulatory risk about the permit extensions is likely to impact a fairly smaller subset of export capacity (~1.7 Bcf/d) that has shown significant commercial viability out of the theoretical export capacity of ~16 Bcf/d that is impacted by the extension risk as shown below.

Our analysis assumed that LNG projects currently under construction (such as Golden Pass LNG- with a deadline of 9/30/2025, ECA LNG – 3/29/2026, Plaquemines LNG-10/16/2026, CC Stage 3- 2/10/2027, etc.) shall meet their “first export” deadlines or will satisfactorily meet grounds for seeking DOE’s approval for an extension. So even after accounting for 1-year delay for commercially advanced projects, it does appear that a short one-year pause in approval of DOE non-FTA export permits and extensions (= no FIDs in 2024) will have minimal impact on the outlook for U.S. LNG to 2028/2029 as shown in Enkon’s forecast for pre and post LNG pause. U.S. LNG Outlook under a 1-yr approval pause remains unchanged until 2027/28. Startup delays of projects beyond 2028 have a net ~1.0 Bcf/d downward revision in the LNG outlook by 2030.

Based on our interactions with buyers of LNG from the impacted projects, it does appear that the consensus is for a wait-and-watch policy, at least until early next year. A year’s delay in LNG projects that require 4-5 years to construct with 20-year contracts is not being viewed as a significant risk. We believe that commercial flexibility offered by U.S. LNG projects to buyers (FOB destination flexibility, cargo cancellation flexibility, low cost) will outweigh any perceived elevation in regulatory/political risk due to this pause. Reshuffling of LNG projects taking FID (i.e., buyers favoring projects with FERC, and DOE non-FTA permits and no urgency to seek permit extensions), as claimed by some LNG pundits, is not a likely outcome in such a scenario.

Implications of Longer-term Pause

A longer-term pause (although unlikely) may have lasting implications on domestic and global gas dynamics. Longer the pause goes, LNG buyers that are end users (like utilities, and industrials) with definitive deadlines for LNG needs may be more inclined to seek alternatives within the U.S. The spotlight will be on LNG projects that have yet to demonstrate commercial viability but have all required approvals to export LNG and have enough time to bring the first LNG online without requiring any permit extensions (Texas LNG, Vista Pacifico, and Rio Grande T4/T5 to name a few). On the other hand, LNG Portfolio players (Shell, BP, TOTAL, etc.) that see the U.S. as a strategic low-cost LNG supply source will be more patient and stick with their current LNG positions. Globally, it may open doors for competing LNG projects to advance U.S. projects, but LNG buyers have limited alternatives to diversify supply (Qatar, UAE, offshore Africa – all in geopolitically sensitive regions). Will this be Canada’s moment?

Several key questions arise from a longer-term U.S. LNG pause:

1. How will the global LNG supply-demand balance be impacted?
2. What will be the implications on global LNG pricing?
3. How will this impact energy transition plans for countries that see natural gas as a key enabler for energy transition?
4. What will the implications be on gas supply growth in the U.S. and on henry Hub price?
5. Who are the winners and losers in the U.S.?

• Amol Wayangankar

If you are interested in the U.S. and Global LNG outlook and obtaining a detailed analysis of the implications of the pause, please get in touch with us at info@enkonenergy.com. We encourage you to subscribe to our articles to get weekly articles via email.

Enkon Energy Advisors is a boutique consulting firm specializing in oil & gas, and energy transition since 2012. We bring deep expertise in a range of markets including natural gas, NGLs, Oil, LNG, and Energy Transition where we provide commercial and market advisory to investors, energy companies, and project developers with consulting services, subscription reports, and analytics, with the goal of delivering commercially actionable outcomes to our client.