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The next decade of liquefied natural gas seemed on track, after the chaos of 2022.
The US, Qatar and some African countries would lead global production expansion, Europe would continue switching to LNG to complete its escape from Russia, while China and other Asian countries would seek LNG to feed their economies, replace coal and complement renewables.
Now the administration of President Joe Biden in the US has thrown a spanner into the works.
The continuing increase in US shale gas has turned the country into the world’s biggest exporter from an LNG importer as recently as 2015.
Yet, despite the fears of some gas consumers when the first LNG export plants were being improved, production has managed not just to keep up with demand, but to run ahead.
Apart from a spike in 2022, domestic prices have stayed low, hovering about $2.50 per million British thermal units since 2012 – the equivalent of about $15 per barrel of oil.
Adjusted for inflation, US gas has never been this cheap on an annual average basis in the whole history of the national marker price since 1989.
The lure of moving inexpensive US gas to hungry and higher-paying consumers in Europe and East Asia has spurred the latest wave of LNG export proposals.
Projections suggest the US could have 160 million tonnes of annual export capacity by 2027, beating even Qatar’s expanded 127 million tonnes, and well ahead of previous leader Australia at about 90 million tonnes.
Now comes the spanner. The US Energy Department will scrutinise new projects for environmental impact, having rethought its methodology, particularly the effects of leaks of the global warming gas methane, the main constituent of natural gas.
Whatever the technicalities, the decision is a popular one for the Democratic Party’s environmental wing, but not good news either for climate or worldwide energy security.
The new reviews won’t stop existing LNG exports of 90 million tonnes annually, nor projects under construction which could double that.
As my co-worker at the Columbia Centre on Global Energy Policy, Akos Losz, observes, the most immediately affected projects are those which have signed some sales contracts but have not yet taken a final investment decision.
There are five of these, three in Louisiana and two in Texas, totalling about 60 million tonnes of intended annual capacity. Three of them are extensions of existing plants, while two are new.
If the reviews are protracted or if some projects are rejected, that will cast a chill over future investments. Commonwealth LNG has been waiting for four years for approval, while the licence for a project in Louisiana by Energy Transfer will expire if it can’t start construction soon.
On the other hand, projects under way already, such as Texas LNG, may gain interest.
One of the companies involved in an expansion, Venture Global, is already embroiled in a legal battle with several European customers, who claim it broke contracts to deliver to them on spurious grounds, so it could resell at higher prices elsewhere.
Whatever the legalities, this does not give American LNG a reputation for reliability. The new reviews and the sense of a capricious policymaking environment in Washington are a more general problem.
Delays, which might morph into an outright ban, aren’t good for the climate, whatever the environmental campaigners think. There should be plenty of LNG on the market by the late 2020s.
So the real impact of any obstruction will be on supply in the early and mid-2030s, when coal should be vanishing from the global energy system.
That could be good news for competitors to the US LNG juggernaut, including the UAE, which is progressing with a large new export plant at Ruwais, as well as Canada and several African countries.
Lower LNG might partly be replaced by more renewables, but renewable energy is already expanding as fast as practically possible in many places. In emerging Asian economies, renewables don’t suit home heating, cooking or heavy industry.
When countries such as Pakistan couldn’t find affordable LNG in 2022, they turned back to polluting heavy fuel oil and coal. The same will be true in the longer term for China, India, Bangladesh, Indonesia, Vietnam and other Asian giants.
The timing is particularly bad for two reasons.
First, with the presidential election coming up in November, Europeans and other US allies are wondering whether they will see the return of Donald Trump – bringing more tariffs, a likely abandonment of Ukraine, perhaps an American withdrawal from Nato, and who knows what other geopolitical and geoeconomic chaos.
But, in practical terms, the continuing gush of “America First” economics that a second term for Mr Biden would bring, is not very welcome either.
One example is the injudicious decision to review the purchase of US Steel, only the country’s fourth-biggest steel maker, by Nippon Steel, from Japan, a close American ally.
This is reminiscent of the campaign against Dubai Ports’ purchase of some US facilities in 2006, which faced similarly xenophobic and nonsensical national security objections.
The US’s lavish subsidies from its Inflation Reduction Act for new energy manufacturing, and its attempts to secure raw materials through self-sufficiency rather than co-operation with partners, make life difficult for inherently more competitive companies elsewhere.
That delays low-carbon plans. And less US LNG would look like a policy of starving struggling European industries of energy.
Second, attacks by Houthi forces on shipping in the Red Sea continue to escalate. US and UK air strikes have so far not deterred them.
On Friday, a British tanker carrying Russian oil – which was expected to be safe – was hit by a missile and set alight. Qatar has started routing LNG cargoes to Europe around Africa.
The danger to maritime transit through the Red Sea may not persist. But, if it does, it strengthens the case for Europe to rely primarily on LNG from the US.
If the war in Ukraine eventually subsides into a frozen conflict, appeasers in European capitals from Brussels to Berlin to Budapest may return to relying on Russian gas.
The US gas and LNG industry does need to clean up its act – stopping flaring and methane leaks, cutting emissions from ships, running its LNG plants on clean electricity, and fitting carbon capture and storage.
Some of the new projects pursue such methods. The US’s competitors will be pleased if misguided environmental enthusiasm jams the gears of its world-leading LNG industry.
Robin M Mills is chief executive of Qamar Energy, and author of The Myth of the Oil Crisis
