Biden administration tightens up extension request process for LNG exports [Gas in Transition]

The administration of US president Joe Biden is tightening up its approach to granting extensions of LNG export authorisations to project developers that have not yet started construction of their liquefaction terminals.

The move has a number of aims, according to the US department of energy (DoE), including aligning the volume of exports approved to countries with which the US does not have a free-trade agreement (FTA) with export capacity operating or under construction. It is also aimed at providing more certainty to US and global LNG markets while also encouraging new entrants by ensuring they are not disadvantaged by competition from older projects that have not yet moved forward.

The DoE said in late April that with current and future non-FTA export authorisations, it would not consider requests for extensions for the start of exports unless the developer could demonstrate that it had physically begun construction and that its inability to meet existing deadlines was the result of extenuating circumstances outside of its control. LNG developers granted non-FTA export authorisations will therefore be under pressure to bring their LNG facilities online within a seven-year window. This timeframe was established during the permitting process for the US’ first export terminal, Cheniere Energy’s Sabine Pass, noted the DoE in its policy statement. Terminals do not need to reach commercial operations within that window, as commissioning cargoes also count, and the deadline is considered to be met when the first cargo is exported from a facility. Indeed, Venture Global LNG’s Calcasieu Pass terminal remains in commissioning but is considered to have met the seven-year deadline. And the DoE said in its policy statement that all seven large-scale LNG facilities that already export US gas had all met the seven-year deadline.

Overhang

The department highlighted, however, that approved non-FTA export volumes totalled 49.83bn ft3/day – equating to nearly half of current US gas production and around four times the amount of current LNG exports. It is now trying to realign these volumes with the amount of capacity operating or under construction. And this could potentially complicate the way forward for older project proposals that have yet to reach the final investment decision (FID) stage.

“We wouldn’t speculate as to the DoE’s motivation but, functionally, if the ruling holds and extensions are not granted it would clear the queue of many older projects that have not yet taken FID,” an RBN Energy analyst, Lindsay Schneider, tells NGW. “In its policy statement, the DoE said that it felt the ‘overhang’ of authorised exports was too high.”

In attempting to address this, the DoE appears to be targeting projects whose commercial attractiveness is in question, given their struggles to attract financing even with export authorisations in hand.

“There have been a lot of complaints that there are not enough high-quality projects that have been permitted,” Poten & Partners’ head of business intelligence, Jason Feer, tells NGW. “I think this is in part an effort to shift the conversation back on the commercial viability of the projects that have permits. Continuing to extend permits indefinitely gives non-viable projects a lifeline and – according to some people in the administration – creates regulatory uncertainty. To their mind, what’s the point of having deadlines if they always get extended?”

Request denied

The rule change is already having an impact. On the same day that the DoE first announced it, it also denied a second extension request to Energy Transfer for its proposed Lake Charles LNG terminal in Louisiana.

Exports from Lake Charles were first authorised in 2013 and the project had previously been granted an extension until December 2025 to begin shipments. However, the DoE said Lake Charles had “not shown good cause” to make an “unprecedented” second request for an extension, to December 2028.

Lake Charles had argued that global events including the coronavirus pandemic had made it considerably more difficult to build large-scale infrastructure projects. However, the DoE pushed back against this, citing, among other factors, the fact that the second extension application was made in June 2022, when the acute effects of the pandemic had “largely subsided”. And it pointed out that certain other developers had made more progress during the same period, suggesting that the pandemic and the war in Ukraine had created both challenges and opportunities that competitors were able to take better advantage of. Energy Transfer signed several long-term offtake agreements for Lake Charles in 2022, but the DoE deemed this progress to be insufficient to justify a second extension.

Energy Transfer said in late May that it planned to seek a rehearing, saying the decision had caused one potential customer to suspend talks over an offtake agreement. But, as Schneider pointed out in an RBN blog post in mid-May, the company will now need to either win that appeal or apply for a new export licence, complicating its path forward.

“If ET succeeds, then their project would continue to rank well among LNG projects yet to take FID,” Schneider said. “And it’s also worth noting that nothing that has already taken FID and is currently under construction is likely to need an extension. But if the policy holds firm, then it certainly favours newer projects proposed.”

It is also worth noting that the DoE granted a two-year extension request to Sempra Infrastructure’s Port Arthur LNG project at the same time as it rejected Energy Transfer’s application. However, Port Arthur is already under construction, with an FID reached earlier this year.

“I generally think that stronger projects have been able to move ahead within the time allotted to them,” said Feer. “COVID was an issue that slowed some projects, but we have had major FIDs this year and a couple of other projects are nearing the finish line. Projects that are commercially viable appear to be moving.”

Feer notes that while construction delays for major facilities such as LNG terminals were “fairly common”, if those come after construction has already started, extensions would still be granted.

Moving forward

The DoE acknowledged that if newer projects become better placed to move forward as older, less commercially attractive projects fail to secure extensions, the new entrants could include those seeking to use more up-to-date technology or adopt better environmental practices. However, Feer does not believe the green component is a “huge” issue when it comes to DoE export permits.

“The [US Federal Energy Regulatory Commission] can consider CO2 emissions but the DoE permit is much narrower and is focused on national interest and the effect that new projects might have on domestic gas prices,” he says. “This was one of the rationales for the decision. They argue that allowing indefinite delays makes it difficult to predict gas demand, which means that there is a risk the US could see too many projects developed and that could cause higher prices for domestic consumers.”

Schneider, however, says that while RBN did not know how much of a factor the green component plays in the administration’s decision making, “it clearly is a consideration”.

In her blog post, Schneider wrote that pre-FID projects with export deadlines coming up over the next five years had “at least a moderate risk” of needing an extension.

“The field is very crowded,” she said. “There are lots of LNG projects in development, more so than during the first wave of development, but that is also perhaps what the DoE hopes to resolve. If the queue were cleared of some of these projects that are unlikely to move forward, perhaps more support would coalesce around certain projects and enable them to move forward faster.”