Noise or Signal? The US LNG Export License Pause
Just a few years ago, LNG was a topic that rarely hit mainstream media. Last week’s headlines showed that this has changed - from “Biden’s Worst Energy Decision” (WSJ) to “Biden Hits Pause on natural gas projects amid plans for carbon ‘mega bombs’” (Guardian) to “Canadian energy producers dismayed by Biden’s move to pause US LNG approvals” (CBC). In energy circles, one of the hot topics quickly became how the Biden Administration’s decision may impact Canadian LNG projects. Many articles were remarkably light on facts, thus the below perspectives and links hopefully help with shedding light on what all this means.
[This blog is not financial or investment advice, but provided for general information purposes only. All information is subject to change and should not be relied upon for any decision making. See Webpage Terms of Use.]
What was decided?
US President Joe Biden on January 26th, 2024 decided to pause the approval of new LNG Export Licenses to Non-Free Trade Agreement (Non-FTA) countries until the US Department of Energy (DOE) can update the underlying analyses for authorizations.
US LNG projects have to pass wo major permit approval steps:
FERC approval
Export Licences for exports to FTA and non-FTA countries
Non-FTA countries include Europe and most parts of Asia, thus essential for project commercial viability
Projects have up to 7 years from export license approval to start operations, with a further 20 years of approved exports
Licenses are required for all projects that export US natural gas, even if the LNG facility is situated outside the US (e.g. Mexico).
Existing permits are not impacted.
How big is the impact?
Three metrics are key:
Operational US LNG Exports: About 12 Bcf/d in 2023
US Export Capacity under Construction: About 14 Bcf/d
Total LNG Export Licenses issued so far: Over 48 Bcf/d
In other words, current US LNG Export capacity will more than double from current levels with projects currently under construction. They could roughly quadruple from current levels with permits issued to-date. And current export levels have already made the US the world’s largest LNG exporter. Further LNG projects are in the queue however, with a significant amount of conditional offtake agreements (see Reuters: Factbox - European and Asian companies affected by US pause on LNG export permits for details). And there is one more curveball - a number of pre- and post-FID projects may not be able to start up within seven years from license approval, thus requiring extensions or new licenses (e.g. Lake Charles LNG). It appears unclear right now whether such extensions are also on hold in all cases (see RBN Energy: Take Five - Gauging The Impact Of The DOE's Pause In LNG Export Licenses for details). But even if we remove all that capacity from the growth outlook, remaining permitted capacity remains significant.
What does it mean for Canada?
Canada’s total gas production is forecast to reach19 Bcf/d in 2025, and LNG Canada Phase 1 will export around 2.1 Bcf/d as LNG, which is about the same relative market share as US LNG projects in 2023 (see also Will Canadian LNG move markets?). Woodfibre LNG in Squamish is under construction with ~0.3 Bcf/d capacity. The Haisla-Pembina owned Cedar LNG is targeting a Q1 2024 FID and would add another 0.4 Bcf/d when operational. LNG Canada’s pre-FID Phase 2 would add another 2.1 Bcf/d. And finally, Ksi Lisims LNG, supported by the Rockies LNG consortium and currently seeking its major permits, would contribute a further 1.8 Bcf/d.
Are Canadian pre-FID projects now more likely to get sanctioned?
LNG Export license terms in Canada are up to 40 years from commencement of exports, i.e. up to twice as long as the equivalent US export licenses. The going assumption in the US has been that an export license extension would be largely a formality, however the recent developments have created doubt around that assumption. Canadian projects thus have more long-term certainty from that perspective. Then again, as outlined above, US LNG export capacity could almost quadruple from current levels before hitting an export license constraint.
What is the takeaway? The Biden administration’s decision has created a lot of noise and raised concerns on political risk for US-based LNG projects. One could argue that this may create tailwind for Canadian projects. The signal seems to be smaller than the noise however, making it rather unlikely that we will see any material impact on investment flows in the near term. Signals still matter though, especially long-term. It will remain a space worth watching, especially post US-elections.
LNG Training
If you are interested in deepening your understanding of LNG markets and value chains, please consider Arder Energy’s customizable training. We also just published the introductory modules as a standalone “LNG 101” training course via the Udemy platform for flexible, time- and cost-efficient learning.
Sources: