Global energy security hangs in the balance with US election uncertainty

Since Russia invaded Ukraine on February 24, 2022, liquefied natural gas (LNG) has become the world’s emergency energy source. It does not require years to prepare land and build extensive infrastructure before it can be developed and transported, as is the case with oil and gas sourced and moved from major deposits through pipeline networks. It also does not require years of high-level political negotiations with key supplier countries to secure long-term access to their oil and gas flows. Instead, LNG can be procured and bought quickly on the spot market if needed and transported quickly anywhere in the world. Russia understood the enormous political and economic power it gave the main buyers of the continent, especially Germany, of its oil and gas in Europe. This almost allowed him to get away without censorship again for his 2022 invasion of Ukraine, just as he did for his 2014 invasion that led to the annexation of Crimea, as fully discussed in the latest book on the new order of the global oil market. China also understood that once Russia’s 2022 invasion began, it was possible that the US and its allies would finally impose sanctions on Russia’s oil and gas supplies, thereby increasing global LNG demand. That is why, in the 12 months before the most recent invasion of Ukraine, Beijing did its best to collect all the LNG supplies it could from the world’s main suppliers, notably Qatar, as also details in the book. Crucially, however, the Western alliance has gradually regained ground, making its own deals with the Emirates and other key LNG suppliers and, in the case of the US, developing its own huge LNG production. However, extraordinarily, the Presidential Administration has threatened this newfound balance by cutting off key LNG export permits. So, as the presidential election approaches, the question is what will Kamala Harris or Donald Trump do next with US LNG policy?

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On January 26, the White House announced the pause, at which point the US had quickly become the world’s largest LNG exporter, with about 119 billion cubic meters (Bcm) of LNG delivered in 2022 from zero before 2016. About two-thirds of all US LNG exports since Russia’s 2022 invasion of Ukraine have been to Europe. At the time, the European Commission (EC) – the executive arm of the 27-nation European Union (EU) – said Washington’s action would have no short- or medium-term impact on the EU’s security of supply. However, a senior figure in the EU’s energy security complex exclusively said OilPrice.com in January that: “The reality is that there is no doubt that the US has been the key factor in ensuring cohesion in the EU’s approach to punishing Russia for its invasion of Ukraine, both in terms of brokering deals with other suppliers such as Qatar , as well as in the supply of LNG itself.” And he added: “The big fear here is not only that these permit breaks for major US LNG projects will last months and maybe longer, but that some of them may not be allowed to go forward at all.” He concluded: “They both raise questions about the entire commitment of the US to the LNG sector now, and therefore there is a very big danger that this (EU) cohesion (in its approach to punishing Russia for its invasion of Ukraine) to be serious. undermined.”

Ten months on and the pause is still in place, with the picture for gas supplies to Europe becoming increasingly mixed. By the end of the third quarter, the continent’s record total gas surplus had all but disappeared. Part of that was driven by an increase in renewable energy production, with industry figures showing solar and wind’s share of its electricity generation rising to about 21 percent in the first three quarters of this year from about 16 percent . At the same time, U.S. LNG shipments to Europe fell 22 percent year-on-year, according to energy transportation sources. That said, heading into Europe’s winter months, energy demand will increase dramatically, and while the efficiency of solar panels today is greater than ever, there is also likely to be an overall decline in energy production from the source. A huge increase in demand from the West’s allies in Asia is also underway and is likely to remain for the foreseeable future. “Our forecasts are for global gas demand to reach new record highs in 2024 and 2025,” the International Energy Agency said on October 3, with total demand expected to rise by more than 2.5% to a record 4,200 Bcm in this year. Overall, the agency added, the global gas balance remains “fragile” as limited growth in LNG production keeps supply tight amid rising global demand. The same market forecast applies longer term, with industry figures predicting LNG demand to grow by more than 50% by the end of 2040, while LNG will remain in tight supply. It was previously intended by the US that this expansion in global LNG demand would be partially met by its own doubling of LNG exports by the end of this decade.

It is therefore not surprising that there have already been several attempts by various political factions in the country to end the ongoing hiatus on these exports. In March, Louisiana, Texas and 14 other Republican-led states sued the Biden administration in an attempt to overturn a freeze on new LNG export permits. That was followed in July by a federal district judge in Louisiana ordering the administration to lift the freeze on export permits until the court can resolve the lawsuit in the 16 Republican-led states. However, the judge did not legally require the Department of Energy to approve such export licenses or set a deadline for it to act on pending LNG permit applications. With that in mind, the pause remains in place, and the Biden administration has said it expects the policy review to be completed by early 2025, though that in itself does not mean the pause will be lifted.

Until recently, Vice President Kamala Harris was expected to maintain the government’s approach to greener energy, including LNG, with continued additional scrutiny of LNG permits that would effectively slow further development of the sector. However, during the presidential debate on September 10, she stated that this may not necessarily be the case, as she was careful to say that she would not ban fracking and supported the idea of ​​high domestic oil production in the US as crucial to the country’s security. Specifically, she pointed out: “My position is that we need to invest in various sources of energy, so we reduce our dependence on foreign oil. We had the largest increase in domestic oil production in history because of an approach that recognizes that we cannot rely too much on foreign oil.” Meanwhile, former President Donald Trump made it clear in “Trump’s Agenda 47” that he will “…establish a national goal to ensure that America has the #1 lowest cost of energy of any industrialized country on earth Earth”. He added that “to keep up with a world economy that depends on fossil fuels for more than 80 percent of its energy, President Trump will DRILL, BABY, DRILL.” He also points out that he will “end Biden’s delays on the federal drilling permits and leases that are needed to unleash American oil and natural gas production.”

By Simon Watkins for Oilprice.com

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