GIF COMMENT: US LNG exports fall under domestic scrutiny as it continues to interfere with Nord Stream 2

Additional reporting by Ruth Liao

LONDON (ICIS)–The US government in November added a new Russia-linked company and two vessels to its list of entities under sanctions related to Nord Stream 2, fuelling further volatility on European spot gas markets.

The US has consistently attempted to stop Nord Stream 2 from being built, citing the pipeline’s potential to stifle Europe’s diversity of supply while its own LNG exports were gaining momentum globally.

The sanctions that put in jeopardy a nearly €5bn investment by European companies into the pipeline are covered by the US Protecting Europe’s Energy Security Act of 2019.

The pandemic played havoc with demand and politicians are now faced with high domestic prices, likely to increase further this winter as Henry Hub futures remain over two times higher as one year ago.

In this new context, the role of LNG exports caught the eye of US politicians.

A US Senate energy committee hearing on 16 November featured prominent Democrats calling for reining in high energy prices.

The trade organisation Industrial Energy Consumers of Americas (IECA) also fired off several statements citing the need to curtail LNG exports to protect domestic consumers. The organisation said its members – manufacturing companies – face challenges from higher gas and liquids prices in chemical and plastic sectors.

“The public interest, both as to domestic prices and national security, is protected only when domestic production and pipeline capacity is robust enough to meet domestic demand: exports must be limited to surplus supply of natural gas,” the association said.

Existing LNG exports could hardly be capped as US LNG producers currently liquefying and loading cargoes have 20-year authorisations from the Department of Energy (DOE) to sell to free trade agreement and non-free trade agreement countries.

It is not likely that any existing DOE export licenses would be cancelled or curtailed – instead, the IECA is calling for a halt on any future LNG export licenses for proposed LNG plants.

Nevertheless, a group of 17 senators on 12 November signed a letter to President Joe Biden, urging his administration to take action to ease rising energy prices this winter. The senators sought to lift the ban on oil and gas lease sales on federal waters, speed up the Federal Energy Regulatory Commission (FERC) and Army Corps of Engineering permitting on pipelines and “end regulatory uncertainty” stifling infrastructure projects. The senators cited the concern for households facing increased heating bills this winter, but they did not address the decision for US gas producers to increase production and deploy capital investment back into upstream activity that would alleviate the supply crunch.

Quite the opposite, embracing Biden’s goal of 100% carbon-free electricity by 2035 the US government this month earmarked $62bn for clean energy activities, including hydrogen development.

DOE called the infrastructure deal “the boldest climate agenda in the nation’s history”.

With this the US is taking the route of steering tax-payers’ money towards supporting more expensive forms of energy with developers arguing it is necessary to bring down costs in the pursuit of hydrogen and other renewable energy projects.

The US House of Representatives on 19 November approved a 10-year tax credit worth up to $3/kg of clean hydrogen as part of Biden’s Build Back Better Bill.

The US government may want to have its affordable but clean energy cake and eat it too. But it is unlikely to be able to share it.