Looming US election spells additional uncertainty for gas industry [Gas in Transition]

The US is preparing for the upcoming presidential election in November, and this spells additional uncertainty for policy on natural gas, and for energy more broadly. The administration of US President Joe Biden has tried to strike a balance between encouraging energy production and exports and reining it in under certain circumstances on environmental grounds – with mixed success. Now, gas policy is once again in the spotlight amid news that Biden’s administration is considering stricter rules for approving new LNG projects.

This comes as Biden tries to appeal to various groups of voters – including both supporters of higher domestic energy production and those prioritising environmental concerns – in the run-up to the election. Thus, there is potential for changes in the area of gas policy this year, though at the same time, the Biden administration could hesitate to introduce any particularly divisive measures in order to avoid electoral backlash. Then, beyond this year, there is further uncertainty because a Republican victory could lead to changes including the potential undoing of Biden-era policies.

Competing pressures

Prior to the last election, Biden had pledged to take a tougher line on environmental issues and climate change compared with his predecessor, Donald Trump. However, rising fuel costs and geopolitical developments have undermined his efforts, with the war in Ukraine causing Europe to look to the US for supplies of LNG to replace natural gas it had been buying from Russia.

“The Biden administration is balancing competing pressures to reduce methane emissions from LNG exports and at the same time meet the President’s publicly stated commitment to double LNG exports to Europe in the face of Russia’s aggression,” a fellow for global gas and energy transitions at Rice University’s Baker Institute Center for Energy Studies, Steven Miles, tells NGW.

In early January, media reports emerged that the Biden administration was weighing whether to introduce more stringent criteria related to climate change impacts into the US Department of Energy’s (DoE) reviews of export licences for new LNG facilities.

“This would slow down the permitting process for, if not potentially outright block, some in-development projects,” Energy Aspects’ head of North America natural gas, David Seduski, tells NGW. “There are already a half-dozen LNG export projects currently under construction that would not fall under the new climate change qualification, but future terminals that were meant for 2030 and beyond like CP2, Rio Grande Train 4 and planned expansions at Cheniere’s Sabine Pass could be at risk under such a plan,” he adds.

 The planned Train 4 at the Rio Grande site in Texas is one of the projects at risk from the potential approval changes. NextDecade said last November it aimed to take a final investment decision on the project in the first half of this year. Image credit: NextDecade.

Seduski notes that the Biden administration has already recently clamped down on LNG export terminal approvals, tightening its rules for granting extensions to projects for starting commercial exports. Indeed, under the updated rules, Energy Transfer had its request for a second extension for Lake Charles LNG rejected, and is now seeking a new export licence that would give it more time to build the facility.

Now, a further tightening of rules could follow, though Rapidan Energy Group said in a note to clients this month that it was not expecting any “meaningful changes” to the existing policy framework. Nonetheless, Rapidan notes that it is politically expedient for the Biden administration to disclose that a policy review is underway, as it justifies a pause in the issuing of new export licences at a time when any major decisions could result in blowback ahead of the election.

Beyond this year, the extent to which LNG projects are scrutinised depends on who wins the election – Biden, or the Republican candidate, which looks increasingly likely to be Trump again despite the court cases he is currently mired in.

“In a potential second Trump administration, we would not expect strict regulatory scrutiny on LNG export projects,” says Seduski.

Changes

While the Biden administration may opt to hold off on making any major decisions on LNG projects in the coming months, if it wishes to push through any policy changes, it has no time to waste.

“The Congressional Review Act means that any new agency rules or regulations adopted close to the end of a presidential term may be summarily rejected by the following Congress,” says Miles. “Each administration, including this one, will attempt to load in as many of its policy changes as possible by the spring before the presidential election.”

On top of this, there is funding to be doled out under existing legislation, including for energy projects, and the relevant agencies will continue to allocate it as the election approaches.

“While we will see many additional carbon-related policy and rule changes in the next few months, the greatest impact may be the dollars that will be pushed out the door by the DoE’s Program Loan Office and other agencies that have the responsibility to dole out many billions of dollars under the Inflation Reduction Act and the Infrastructure Act,” says Miles. “It is harder to claw back money spent on new technologies and projects once it has been pushed out the door than it is to rewrite regulations.”

Different approaches

One aspect of the Inflation Reduction Act that stands to affect the gas industry and looks likely to be handled differently by Democrat and Republican administrations is the introduction of a fee for excess methane emissions. Seduski notes that the details on how to calculate the fee, the question of whether companies could receive exemptions and other details had been left to the US Environmental Protection Agency (EPA) to determine.

“Biden’s EPA put a fee of $900/tonne of methane, which will rise to $1,500/t by 2026,” he says. “Some energy producers associated with the American Petroleum Institute have already said they will fight this fee, as well as the regulatory requirement that fugitive methane leaks from pipelines and gas wells be fixed. Trump’s EPA would likely set lower levels of fines (or cancel out the fine altogether) and withdraw the regulations to fight fugitive methane emissions,” he adds.

Another area where Democrat and Republican presidents can be expected to take differing approaches is oil and gas lease sales on public land and in federal waters.

“Biden’s plan offers no lease sales in 2024, and has laid out a roadmap for only three small sales for available development until 2029 (with the fewest sites on offer over a five-year period since the 1980s),” says Seduski. “The Trump administration would likely open up much more land for drilling leases.”

This and other changes would represent a return to policy seen in Trump’s previous term in office. The Biden administration had aimed to change direction, but Trump or any other Republican can be expected to backtrack on Biden-era policies in a similar manner.

Policy and legislative changes beyond the US will also have an impact on the country’s gas industry as it seeks a dominant position in the global gas trade. This adds to current uncertainties for natural gas players, including LNG developers.

“The natural gas and LNG industries will need to take stock of the major regulatory and legal changes coming, both in the US and in the EU and elsewhere (such as carbon tariffs) towards the end of this year,” says Miles. “The US has a significant inventory of projects already licensed and under development or construction, but the horizon beyond those projects will remain murky until the new regulatory clouds are cleared.”