A federal judge has struck down the Department of Energy’s ‘pause’ on new LNG project export licenses, scoring a big legal win for industry and LNG advocates. Nevertheless, East Daley is skeptical the legal challenge will turn the tide for 5+ Bcf/d of LNG projects caught in the crossfire of the shifting DOE policy.
In late January, the Biden administration announced it would temporarily pause new export licenses for LNG projects so it can study the climate impacts of additional exports. The policy puts a hold on review of applications to export LNG to countries without US free trade agreements (non-FTA) while the DOE can update its economic and environmental analyses on the impacts of LNG exports.
East Daley Analytics tracks and models LNG exports as part of the Macro Supply & Demand Forecast. The change in DOE policy put 5+ Bcf/d of LNG exports in question in the long-term Macro forecast. Our LNG export capacity stack includes Golden Pass, Plaquemines Phases 1 and 2, Corpus Christi Stage 3, Delfin LNG, and Port Arthur Phases 1 and 2. These projects are past the DOE approval phase and are expected to start service in the 2024-26 period. Later-stage projects including Rio Grande LNG, Cameron Train 4, Texas LNG, and Mexico Pacific (for Saguaro Energia LNG in Mexico) also already have non-FTA permits, and so the new policy does not impact them. Together, these projects represent 14 Bcf/d of incremental LNG export capacity.
However, DOE’s licensing pause could delay the review of Phase 2 of Global Venture’s CP 2 LNG, Commonwealth LNG, and Cheniere Energy’s Stage 5 expansion at Sabine Pass. Together, these projects account for 6.3 Bcf/d of planned export capacity between 2027 and 2031 and are at risk under the new policy (see gray area in figure).
On July 2, a federal judge blocked the new DOE policy, giving these projects some grounds for hope. The ruling came in response to a lawsuit filed by a coalition of 16 Republican-led states, which claimed the administration had overstepped its authority. The US District Court for the Western District of Louisiana agreed and stayed the DOE pause, finding it needlessly harmful to the plaintiff states’ economies.
EDA is skeptical that the latest court ruling will actually result in a quicker review. For one thing, it is not clear that a court can actually force the DOE to move any faster on project approvals, even if the pause is nominally lifted. The ruling does not require immediate approval of LNG applications, only that the DOE restart the process of considering them. That provides plenty of wiggle room for the agency to effectively stay the course on the current pause.
Second, the DOE could appeal the decision. The agency has the authority, vested under the Natural Gas Act, to regulate gas exports, and could argue the licensing pause is part of its administrative duties to protect the public interest. These matters are at the heart of the US Supreme Court’s recent ruling overturning the Chevron doctrine, which historically gave deference to executive agencies like DOE to interpret federal statutes. However, settling this matter through the courts would take time, leaving the current policy in place.
Despite the DOE pause, LNG projects are making progress on other fronts. On June 13, Venture Global signed a non-binding Heads of Agreement with Ukrainian energy company DTEK Group to purchase 2 mtpa of LNG from the CP2 LNG facility for 20 years. DTEK Group also agreed to buy some unspecified number of cargos from Plaquemines LNG, which is expected to produce first LNG later this month.
The Federal Energy Regulatory Commission (FERC), the other major federal agency with oversight over LNG projects, also continues to review LNG applications for environmental impacts. On June 27, FERC granted Venture Global approval to move forward with the 20 mtpa CP2 LNG export facility, as well as its 4 Bcf/d header pipeline, CP Express.
For now, we do not see any cause to adjust our LNG demand forecast. This court ruling should put more eyes on the financial challenges the pause has created for affected LNG projects, but it’s unlikely that the Biden administration takes a new position with the election looming just four months away. – Oren Pilant Tickers: LNG, SRE.
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