Trouble At Home And Abroad: Biden’s LNG Ban Is Putting Global Energy Security In Jeopardy

The Biden administration’s recent decision to temporarily pause approvals for new U.S. LNG export projects to non-FTA countries is not only endangering domestic energy security and economic prosperity, but is set to have far-reaching negative impacts for the rest of the world when it comes to security of supply and reliance on hostile foreign powers.

As EID has previously discussed, Biden’s LNG freeze could hurt the U.S. economy, eliminate American jobs,  impede efforts to reduce emissions, and increase Europe and Asia’s dependence on Russia, the Middle East, and China for energy.

The International Energy Agency’s (IEA) latest gas demand report forecasts that global demand for gas is set to grow by 2.5 percent, or 100 billion cubic metres this year, five times faster than last year’s 0.5 percent expansion. Despite the expected uptick in demand, LNG supplies are expected to grow by only 3.5 percent this year – well below the 8 percent growth rate experienced between 2016-2020. The report adds:

“With supply forecast to be tight again in 2024, a limited increase in global LNG output is expected to restrain demand growth, notably for Europe and the mature markets of Asia. […] Growing demand and tight supply could significantly contribute to price fluctuations throughout the year.”

With demand and supply dynamics in global gas markets evidently strained – and set to become even tighter in 2024 – Biden’s moratorium on new LNG is a serious danger to energy security across the United States., Europe and Asia. As Kaushal Ramesh, head of gas and LNG analytics at research firm Rystad Energy commented:

“For them [the U.S.] to embark on a policy update that will slow LNG approvals is a significant development that is bound to induce nervousness in future LNG customers, including diplomatic allies in Europe and Asia”.

MST Marquee energy analyst Saul Kavonic concurs on the potentially devastating impact the ban will have on allies’ confidence in the United States as a friendly source of reliable energy:

“Almost 70 million tonnes a year of LNG capacity may be held up due to the pause in approvals, which will reduce the pace of LNG supply growth from 2028, and see LNG buyers around the world question how dependent they can plan to be on US LNG for their energy security.”

The full consequences of the ban are yet to be seen, although the decision is already casting speculation on a number of export plans. Australian energy group Woodside had committed to buy up to 2.5 million tonnes a year over 20 years from Commonwealth LNG, however, the start-up of supply is now expected to be delayed following the moratorium. Reuters named Commonwealth LNG among ventures potentially most affected by the ruling.

If there’s one thing that recent geopolitical shocks to the energy market have shown, it’s that countries are unwilling to compromise on energy security. This begs the question, where will America’s allies go to plug their gas demand?

A number of experts have expressed fears that allies could be forced to turn to Russia, the Middle East or China in the absence of reliable long-term U.S. supply. The Financial Times’ Lex column summarises:

“Ultimately, a lasting suspension could benefit alternative LNG suppliers. One of these is Russia. […] There is a clear risk that scantier US supplies succeed in increasing global demand for Russian gas.”

Indeed, Biden’s announcement of the LNG approvals pause is already impacting decision-making for foreign powers. We’re seeing countries such as Brazil turn to China and the Middle East to shore up long-term LNG supply. Jean Paul Prates, CEO of Brazil’s state-run Petrobas, outlined his intentions to secure supply contracts with China, India and the Middle East. Speaking at India Energy Week, the Brazilian executive said:

“We have two groups of Asian countries that we’re interacting very much right now and we’re building relationships right now – Gulf countries, India and China”.

As  experienced during the initial geopolitical shock of Russia’s invasion of Ukraine, price volatility in energy markets ultimately hurts consumers. Energy prices in the European Union reached record levels in 2022, a trend that was mirrored across the western world. But American LNG has contributed significantly to stabilising global energy prices. As Didier Holleaux, President of trade association EuroGas, explains:

“This LNG has been a relief for Europe and contributed to the stabilization of gas and electricity prices in Europe for consumers, after a long period of record high prices caused by the Russian supply drop…A lack of additional U.S. gas-export capacity would risk increasing and prolonging the global supply imbalance.”

Bottom Line:  The Biden administration’s LNG moratorium is undermining global energy security and risks playing into Russia’s hands as countries scramble to shore up long-term supply. The ban on approvals is already resulting in market instability, which will only serve to hurt  consumers as price volatility increases.

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