On The Hill, Tough Questions, Skepticism Greet Administration’s LNG Freeze

Mark Green
Posted February 12, 2024

Takeaways from last Thursday’s Senate hearing on liquefied natural gas (LNG) permitting – the Biden administration’s first real opportunity to explain why it is freezing LNG permitting, a decision that is rattling America’s allies while triggering bipartisan opposition in Congress.

Vibe: Some members of the Senate’s Energy and Natural Resources Committee were skeptical of the administration’s arguments for pausing LNG permitting – in particular, President Biden’s team claiming that further study is needed to evaluate LNG’s effects on domestic natural gas prices and climate.

Misunderstanding markets: David Turk, U.S. Energy Department deputy secretary, was the point man for the hearing, and he focused on how supplying LNG to other nations could increase domestic prices. The problem with the argument the opposite has happened, even as U.S. LNG volumes have increased.

The fact is domestic natural gas prices are among the lowest in the world (red line below).

While U.S. LNG shipments reached record highs in 2023, domestic prices tumbled 62% from the 2022 annual average, as U.S. natural gas production also surged to record levels. That’s because America’s natural gas producers have responded to rising demand with production that has kept the domestic market well supplied. That’s the way markets work: Production responds to changing demand.

Projections about how much U.S. natural gas would be converted to LNG have created misplaced anxiety, given what actually has happened. Charlie Riedl, executive director at the Center for Liquefied Natural Gas, explained to the committee:

“The U.S market has demonstrated the ability to absorb the increase [in exports] that we've seen, right? … Production will rise to match that. The market will determine exactly just how much more volume is brought on. When we start trying to pick winners and losers in projects, I think we're automatically losing.”

The other market dynamic at work is in deciding how much U.S. LNG capacity will actually be built. The administration says it is alarmed at how fast U.S. LNG capacity has grown and may grow in the future. But market demand will determine whether LNG projects here or anywhere in the world will come online. And on the economy, U.S. natural gas capacity to supply domestic and global markets – keeping both well supplied – would not put upward pressure on domestic prices.

The real climate story: Some senators on the committee wondered why the pause was ordered now – with the administration pointing to questions about domestic prices (see above) and climate as the reason for more study.

No need for further review. Natural gas’ climate benefits already are well known in the U.S.:

• Using natural gas as a fuel results in fewer emissions of nearly all types of air pollutants and carbon dioxide (CO₂) than burning coal – about 50% fewer CO₂ emissions, according to the U.S. Energy Information Administration (EIA). Displacing coal use around the world is huge for reducing emissions, and LNG could be a big part of that.
• U.S. CO₂ emissions from the power sector are at generational lows, largely because of increased use of natural gas.
• Natural gas has accounted for more than 60% of the CO₂ emissions reductions in the power sector from fuel switching since 2005 – about twice the contribution of renewables.

The question many have is, why interrupt those trends and potentially force the world to use more coal? Democrats Mary Landrieu, the former senator from Louisiana, and Tim Ryan, former congressman from Ohio, co-authored a piece in The Hill, challenging the administration’s anti-LNG climate argument:

“As Democrats supporting President Biden, we are aligned with the imperative to reverse climate change quickly with bold action, including ramping up investments in renewables and clean energy. … But low-carbon natural gas must be part of the equation too, both here at home and exported abroad. That’s why Biden’s recent actions to halt LNG approvals is so disappointing. … We’ve shared this sentiment with the Biden administration, including the critical role American natural gas exports must play to move the world off coal and provide our allies abroad with secure energy, so they aren’t instead forced to rely on hostile leaders.”

Chilling investment: The administration’s LNG freeze has put allies on edge and could impact future infrastructure investment and construction. Turk assured senators the freeze will last months, not years. Europe might not take much solace in that.

James Watson, secretary general of eurogas, said Europe wants to see more long-term contracts signed for U.S. LNG, not less. Europe still takes about 12% of its natural gas from Russia, and Watson said the goal would be to reach zero:

“We do see this as some kind of destabilization of the situation, and that is very difficult for us to understand. I think that we would like to have a better understanding of why a pause has been declared in the middle of winter, which is in Europe, the peak gas season.”

Watson said the mood in Europe is one of deep concern:

“There is no European government that has welcomed this decision, The European Commission … did not welcome this decision. The European Parliament has not welcomed this decision, nor has the European Council. The United Kingdom has not welcomed this decision. No country in Europe, has welcomed this decision.”

On LNG investment, Riedl said the administration has sowed uncertainty, which is an enemy of new project financing:

“No one's going to finance a $20 billion-project without firm commitments on the long-term contracts that we've been discussing this morning. A project relies on a non-Free Trade [Agreement] authorization as part of the idea that they have all of the necessary permits from the United States to begin export. No bank is going to lend a $20 billion-loan to a project developer on the idea that they might end up getting their permit at some point down the road.”

Election-year politics loom over freeze decision: During the hearing, Deputy Secretary Turk downplayed suggestions the administration suddenly froze LNG permitting to shore up election-year support from climate activists. Recall that a recent Washington Post editorial called the LNG freeze an “election-year sop to climate activists” that could damage America's "reputation for rational, fact-based policymaking …”

Alaska Sen. Lisa Murkowski suggested the administration’s decision was hard to explain outside of politics:

“You have to acknowledge that there is a fair amount of skepticism and cynicism about this and the politics of the timing – with a president who is trying to get well with the environmental community … [B]lame it on TikTok or blame it on whatever, but we're in a place that just doesn't seem to make sense and it doesn't make sense from an economic perspective or from a trade perspective.”

Democrat Joe Manchin of West Virginia, the committee’s chairman, called the LNG freeze a “terrible, terrible mistake.”

As we’ve said, American LNG is too important – to U.S. allies, to domestic jobs and economic growth, and to global climate efforts – for election-year politics. “It’s time for the administration to stop playing politics with global energy security,” API President and CEO Mike Sommers said (more in his recent column for Fortune).

Murkowski took a sardonic view toward Turk’s assurance to senators that the Energy Department’s review would take months, not years. “My guess, and I think it’s probably a pretty well-educated guess,” Murkowski said, “[is] that it will conveniently not be concluded prior to the election.”