The US LNG industry is under pressure as challenges and uncertainty mount

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The U.S. liquefied natural gas industry faces mounting challenges as legal clashes with activists and contractors combine with a federal permitting freeze to slow the expansion of the world’s largest exporter.

Two multibillion-dollar terminals under construction on the Texas Gulf Coast, backed by supermajors ExxonMobil and TotalEnergies, suffered further setbacks this month that are expected to lead to delays.

That added to uncertainty about future supply growth created by the Joe Biden administration’s pause on new export permits and underscored the complexity of launching LNG megaprojects.

“LNG plants are energy infrastructure – and building energy infrastructure in America today is difficult,” said Kevin Book, managing director of ClearView Energy Partners.

The U.S. LNG industry has grown in recent years amid rising demand from abroad, especially as Europe tries to wean itself off dependence on Russian gas following Moscow’s large-scale invasion of Ukraine.

The US overtook Australia in 2023 to become the world’s biggest exporter, shipping 11.9 billion cubic meters per day of LNG – enough to meet the combined gas needs of Germany and France – and the industry has ambitious plans to double exports by the end of the decade.

But despite the US’s thirst for molecules, the challenges of bringing new terminals costing tens of billions of dollars online are mounting.

ExxonMobil and QatarEnergy this month delayed the start of their $11 billion Golden Pass project in Texas by six months until the end of next year after a clash with main contractor Zachry Holdings over project development costs. Zachry filed for bankruptcy protection in May.

An agreement reached with Zachry in recent weeks allowed the owners to bring in a new general contractor and continue construction. Exxon chief financial officer Kathy Mikells welcomed the deal, telling the Financial Times it would allow the company to “move forward to complete the project”.

NextDecade’s $18 billion Rio Grande project was also hit this month after a court rejected a key regulatory approval following a legal challenge from environmental and community groups.

The company – which is 17% owned by France’s TotalEnergies – has vowed to take “all available legal and regulatory measures” to ensure the first phase of the project, due to come online in 2027, is completed on time and that its last stages will not be completed. be “unreasonably delayed”. Shares of NextDecade have fallen about 40% since the announcement.

“This decision has far-reaching implications beyond this project,” NextDecade chief executive Matt Schatzman said in a statement to the FT.

“If the decision stands, the precedent that would be set by the court’s action has the potential to affect the viability of all federally permitted infrastructure projects, as it will be difficult for those projects to attract capital investment until they receive final non-appealable permits.” .

When fully operational, the combined export capacity of the Golden Pass and Rio Grande facilities will reach 5.9 billion cubic meters per day, nearly half the volume delivered by the US last year.

Delays in bringing US projects online threaten to further squeeze an already tight market and drive up prices. The Golden Pass delay will remove 2.3 million tonnes of supply from the market next year and 5.2 million in 2026, according to Wood Mackenzie.

The recent setbacks add to the woes of an industry whose rapid expansion since its inception in 2016 hit a roadblock this year after the Biden administration halted new export permits for the terminals in January while the Energy Department conducts a review of the benefits.

Since then, there has been a significant slowdown in developments getting the green light. Last year, three projects with a combined record capacity of 37.5 million tonnes per year reached the crucial final investment decision stage, according to Wood Mackenzie. This year no project did so.

Although the Biden moratorium was blocked by a federal judge last month, no new permits have been issued since then, and industry players don’t expect any change before the November presidential election.

“LNG developers and buyers await clarification from the courts and the US election to remove uncertainty,” said Mark Bononi, analyst at Wood Mackenzie.

The Energy Department’s review is expected to be completed by March 2025. Republican presidential candidate Donald Trump has said he would immediately begin issuing permits if re-elected. Analysts expect Democratic candidate Kamala Harris to quickly end the freeze.

But Harris will face strong pushback from environmental groups and local activists over any move to speed up permitting for an industry they say has destroyed coastal ecosystems and harmed local communities.

The Carrizo/Comecrudo Tribe of Texas, which was among the plaintiffs in the case against NextDecade, said the project trespassed on sacred land and vowed to continue to strongly oppose it. “We will fight to the last penny,” Juan Mancias, the tribal chairman, told the FT.

Uncertainty in the U.S. has prompted some buyers to look abroad, in a move that industry players warn could derail some projects entirely as anchor clients look for contracts with clearer timelines.

“It’s not good for these projects to sit in limbo for a long time,” said Jason Bennett of law firm Baker Botts. “Buyers will always buy LNG and they’re looking to buy over a period of time.”