The Trump administration is facing threats to its ambition to flood the world with cheap natural gas as a key component of its energy dominance agenda. And some of the damage is self-inflicted.
Most immediately, the U.S. has a shortage of facilities along the coasts to export liquefied natural gas, or LNG — the chilled, liquid form to which gas must be converted for shipment in giant tanker vessels across the sea.
The U.S. has two major LNG export facilities in operation today, with another four set to enter service by the end of 2019. Four others have earned regulatory approval, and their developers are making final investment decisions on whether to build their planned facilities based on whether they can secure contracts for the gas they hope to provide.
But more than a dozen other facilities are awaiting permit approval from the Federal Energy Regulatory Commission (FERC), a backlog that the panel is struggling to meet because of a manpower shortage and other issues. In fact, it’s been three years since FERC approved a new LNG export terminal.
“There are things we need to do in the near term now, working with industry and Congress, to move projects faster, or we will just miss this U.S. energy moment,” FERC Commissioner Neil Chatterjee, a Republican, told the Washington Examiner. “This is a big opportunity for the country, not just economically but geopolitically. My concern is if we don’t pick up the pace, we may miss the moment.”
In the longer run, President Trump’s trade war with China is threatening to discourage the world’s fastest growing LNG market from signing long-term contracts with American developers, experts say.
For now, U.S. LNG isn’t among the more than 500 U.S. products against which China has imposed retaliatory tariffs in response to the Trump administration’s tariffs against $50 billion in Chinese goods. And it might never happen, because China needs cheap gas to wean off its heavy use of coal that damages the country’s air quality.
But because buyers of LNG demand long-term contracts, in the 20 year range, China could be reluctant to commit to the U.S. with trade tension uncertainty.
“I am not saying China will impose tariffs on U.S. LNG,” said Alex Munton, who studies American LNG for the research consultancy Wood MacKenzie. “That is not in China’s interest. It would make their life harder. What it means is it could make Chinese companies think twice about signing onto long-term contracts because there is a risk that politics will dislocate the supply under those contracts.”
Before the shale boom, the U.S. was expected to become a big importer of LNG, and import terminals were even built in preparation for it. But drilling in shale fields over the last decade has unlocked massive new sources of gas, far more than the U.S. consumes. As a result, America has become a net exporter of natural gas.
To deliver on that promise, companies had to transform expensive terminals equipped to import LNG into ones that can export it. The Trump administration has heralded the shift, predicting American LNG could reduce Russia’s dominance of Europe’s natural gas supply, and help clean up the air in countries with increasing demand for energy, such as China and India. Natural gas, a fossil fuel, emits about half as much carbon dioxide as coal.
The Energy Department says that America’s two operating export facilities ship American LNG to 30 nations on five continents, and increased U.S. exports of LNG from 0.5 billion cubic feet per day in 2016 to nearly 2 billion cubic feet per day in 2017.
The existing export terminals are Sabine Pass in Louisiana, and Dominion Energy’s Cove Point in Lusby, Md.
“The U.S. is in an excellent position to help define the global market for natural gas,” George David Banks, who previously served as President Trump’s international energy adviser, told the Washington Examiner. Banks said the Trump administration is eager to use its gas might to encourage Germany to reject Russia’s plan to expand the controversial Nord Stream gas pipeline to Europe.
Trump recently attacked Germany for being “captive” to Russian gas. Nearly half of Germany’s natural gas supplied by pipeline came from Russia last year. The U.S. has begun providing gas to Eastern European countries that also depend on Russia, including Lithuania and Poland.
Trump said he reached a deal July 25 with European Commission President Jean-Claude Juncker for Europe to buy more American LNG. However, experts said that European companies would still be responsive to market forces, since Russian gas supplied by pipeline is the cheapest option.
“I don’t think anyone is suggesting that U.S. LNG can replace all of Russian gas,” Banks said. “But the goal here is to help create a competitive market for natural gas and Eastern Europe, which is in everyone’s interest except for the Russians.”
Delays in approving infrastructure, along with trade disputes, threaten to stall projections from S&P Global Energy that U.S. LNG exports could hit more than 8 billion cubic feet per day by 2020 and 12 billion by 2025.
“This is really about the next wave of LNG projects globally and where that gets built,” Munton said. “Lots of places are competing for future supply right now. Buyers have some time to wait and see how things unfold, but very soon, they will need to start jumping in and signing deals and the U.S. wants to make sure it is at the table when it happens.”
To do that, the U.S. has to get its house in order, experts say.
Industry is pressuring FERC to address the permit application backlog. FERC is taking notice.
Chatterjee, the Republican commissioner, this month issued a missive on Twitter proposing solutions to the permitting crunch. Facing a manpower shortage, he said FERC should be able to give pay raises to its lawyers and engineers who review complex LNG export applications. He recommended the commission should open an office in Houston, Texas — the U.S. energy hub — so that employees can live where they work.
“They are just stretched to the max,” Chatterjee told the Washington Examiner. “It’s taking longer to approve projects because of the volume of work. FERC has always had a reputation for being best in class when it comes to the permitting process, and I worry about maintaining that reputation if we don’t get more efficient.”
FERC Chairman Kevin McIntyre, a Republican, recently said the commission had only one application for an LNG export project in 2011, compared to 15 pending applications today.
“The market for LNG is growing very quickly, faster than what was anticipated for global demand,” said Charlie Riedl, the executive director of the Center for Liquified Natural Gas, a nonprofit trade group. “Being able to enter into the market as demand is increasing facilitates an opportunity for the U.S. to capture that demand. Delays or uncertainty give pause to buyers that would be thinking about the U.S. as an option.”
Riedl said the entire permitting process beginning with pre-filing typically takes five to six years before a facility is built. The Energy Department also reviews LNG export projects.
FERC, the Trump administration, and some lawmakers in Congress are taking steps to speed things up.
FERC has hired outside contractors to help with the permit application backlog. The commission announced this month it is finalizing a policy with the Transportation Department’s Pipeline and Hazardous Materials Safety Administration to “refine and reduce the permit application review process” for LNG facilities.
And Chatterjee’s Twitter lobbying has proven effective. He encouraged two Texas lawmakers, Reps. Pete Olson, a Republican, and Gene Green, a Democrat, to introduce a bill that would give FERC the authority to pay outside of government pay scales for positions where they have problems attracting talent.
The Energy Department, meanwhile, is planning to speed up the approval process for projects to export small amounts of liquefied natural gas, enabling the agency to automatically approve applications if they are at or below 51.75 billion cubic feet of exports per year, without an environmental review.
“These are important long-term steps, but we need to do more in the near term to get the process moving faster,” Chatterjee said.
The trade fight with China hangs over potential long-term progress for U.S. LNG exports.
China’s demand for LNG is soaring, and it is relying more on the U.S., becoming the third largest destination for American gas behind Mexico and South Korea. Chinese imports of U.S. LNG increased from zero in 2015 to 17 billion cubic feet in 2016, to 103 billion cubic feet last year.
Other countries, including Russia, Qatar, Canada and Mozambique are also offering LNG at competitive rates. Experts and industry say U.S. supply, despite its cheap prices, is replaceable.
“There are other markets in other countries who would be equally interested in taking the U.S. market share,” Riedl said. “We don’t think tariffs are a good idea. There are a lot of potential problems on the U.S. doing deals with the Chinese if we are in the middle of a trade war.”
