PINDER: Uncertain government policy the curse of the US natural gas industry

Second in a four-part series on the politics of natural gas development in the US and in CanadaAccording to analytics company RBN Energy, American exports of liquified natural gas have grown dramatically over the last 20 years — from zero to 14 billion cubic feet/day (bcfd). They are expected to reach 25 bcfd by 2030. Or more: Projects in various stages of development could take LNG exports to as much as 48 bcfd.The benefits of natural gas are obvious and well-known. And the development of LNG resources has become a very substantial industry, both domestically and globally.The problem is that it is also vulnerable to political expediency. This could be an obstacle to long-term growth.First, the approval process is complex. Again, courtesy of RBN, both Department of Energy (DOE) and Federal Energy Regulatory Commission (FERC) approvals are required. FERC is an appointed body with a mandated role, in theory isolated from political influence.The Department of Energy however, is part of the federal bureaucracy. The Executive Branch can and does dictate to the DOE: An example is the recent Biden-ordered pause, the subject of the first column in this series.Export licenses approved by the DOE come in “two flavours, one for free trade agreement (FTA) countries and one for non-free trade agreement (non-FTA) countries.” DOE approval must be preceded by “FERC authorization,” after which the projects have seven years before the DOE approval expires.To pile further complexity onto what could and should be a clear and simple regulatory process — this feels a lot like Canada — the DOE first grants licenses to countries with Free Trade Agreements. These include Canada and Mexico and are guided and required by treaty. Energy Intelligence points out there are currently 12 projects awaiting licenses, four of which have FERC approval, five await approval from FERC, and one requesting an extension. Those should proceed, but who knows?Given the immensity and complexity of these projects, the DOE usually grants time limit extension requests beyond the seven years. After all, the cost, planning and construction of the facilities that first cool and compress natural gas into a liquid, followed by facilities that load LNG onto special ships, require a lengthy and costly approval process that needs clarity, certainty and completion extensions.Increasingly before the sponsors begin the massive front-end loaded capital spending, contracts with customers are negotiated. Unfortunately however, the growing uncertainty of an already multi-step regulatory approval process coincides and conflicts with two things, the urgent needs of trading partners and military allies seeking the secure, lower emission and abundant natural gas from North America and perhaps more important, their long term needs.In other words, there is a lack of clarity between projects that have been approved, projects for which construction is underway and projects that have requested an extension of the seven-year license. Confusion and uncertainty then and at the worst possible time in history.The DOE for example, turned down a request last summer to review long-term LNG policy. It is acknowledged here that exporting a significant component of production should receive full strategic and economic review. What next, then? A logical question is the anticipated total sustainable production versus domestic needs.As well, there needs to be consideration of the impact of the Biden pause on domestic prices. For, inevitably North American growth will take the US from being an isolated island to an integral player in a global market, buying and selling at world prices — not domestic. It is unclear whether this will increase lower prices or reduce global prices, or both.This is quite different than the “emotional and disruptive” Biden pause, in the words of the Cato Institute. Today’s uncertain and volatile world needs consistent, informed and wise leadership.Second, placating the climate crisis crowd to retain political support appears difficult. How quickly for example, came the cancellation of Keystone XL, on Biden’s first day in the Oval Office. This is no longer top of mind. Neither is his unprecedented and misnamed Inflation Reduction Act (IRA) to subsidize green projects. As the response has been mostly from foreign companies, it is hard to understand how government borrowing to hand out money reduces inflation — au contraire, all of the debt incurred during and since COVID-19 is a major reason for higher interest rates.Third, what happens if Trump regains the White House? The pause will likely be withdrawn. On the other hand, if Biden wins a second term, he will not face the electorate again and be free from having to please interest groups. Will strategic wisdom and support for allies then prevail or will his top down control and command tendencies continue to limit the incredible American natural gas story?Abundant natural gas has enabled the US to lead the world in emission reductions, attract investment, provide both union and non-union jobs, and further affirm the strength, reliability, and leadership of the United States of America.Sadly, the Biden Pause suggests an irresolute mind and puts all the above at risk.This is the second in a four-part series. The third will be published on Saturday, March 30th

PINDER: Uncertain government policy the curse of the US natural gas industry

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