Hey Joe, your LNG plan could be downright dangerous

Reuters/Joshua Roberts

The mess that is US energy policy is becoming a bigger pool of inconsistencies and contradictions by the week.

Just when you thought the Biden administration had got over its politically motivated opposition to big oil, it has come up with a masterplan to stymie the American liquified natural gas industry – possibly sending Europe back into the arms of Russia.

At a time when LNG supplies are being impeded in the Red Sea by Houthi attacks, the administration’s move to halt approvals for exports of LNG from new projects is irresponsible – and could be downright dangerous.

It is as if the needs of US domestic policy trump (no pun intended) any serious consideration of the wider economic or geopolitical context.

Some energy policy experts see this as a result of a pact Joe Biden made with the left wing of the Democratic Party, which got him the nomination in 2020 but left him a hostage to promises made to environmentalists in the party.

On entering the White House, Biden’s team got down to the serious business of fulfilling campaign pledges – declining new permits for exploration and blocking much-needed infrastructure such as pipelines and refineries.

Perhaps more significantly for US crude, the White House gave vocal encouragement to the environmental, social and governance investing movement – which for a while deterred new investment in American shale.

When the lack of investment unsurprisingly led to lower US oil production, the White House had the nerve to blame Saudi Arabia and Opec for the swift rise in gasoline prices. It came to Riyadh begging for an increase in production – which the Gulf oil producers declined.

The plan will stymie the American liquified natural gas industry – possibly sending Europe back into the arms of Russia

Since Opec+ began its extended programme of cuts, the oil price has recovered and Wall Street financiers have been tempted back into oil investment. This has led to the happy state of affairs for US oil where it is producing more than 13 million barrels per day – the highest levels in its history and in effect guaranteeing US energy independence.

It is just as well America has turned into the world’s energy reserve because Russia’s invasion of Ukraine has cut off European supplies from the east, especially of the natural gas that had fuelled much of European industry and domestic consumption.

Republicans and some Democrats in Congress have threatened to block the proposals, which will be debated this week.

If Biden’s “pause” goes ahead, it will hit Europe especially hard. Special review and approval will be required for export markets with which the US does not have an existing free trade agreement. This includes the whole of the European Union and the UK.

An analysis by the Oxford Institute for Energy Studies points out that the pause will take some time to trickle down into global markets – and will need to be approved by the winner of November’s presidential election.

In a worst-case scenario, global export capacity of LNG could be affected by 50 million tonnes per year by 2030 – a significant hit that will have to be absorbed mainly by Europe.

It would be easy to get carried away. The Wall Street Journal – no friend of the Democratic Party – has called the policy “Biden’s Worst Energy Decision” and conjured up a scenario in which Russian or Iranian proxies take out exports from Qatar (the big rival of the US for European exports), causing even more mayhem in global energy markets.

The Oxford Institute is more restrained, but warns that Russia will be inclined to make the most of the situation and Europeans may be inclined to take up the offer if the war in Ukraine is over by then.

“It would be the ultimate irony, if the actions of the Biden administration … simply resulted in more Russian LNG and/or pipeline gas being exported to Europe and elsewhere,” the institute concludes.

At the beginning of the Ukraine war, Biden assured Europeans that the US could make up the shortfall in Russian energy supplies, especially LNG or pipeline gas.

Now it looks as though internal politics are forcing him to renege on that commitment.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He also acts as a consultant to the Ministry of Energy of Saudi Arabia