US LNG struggles to balance growth and sustainability

The United States became the world’s largest exporter of liquefied natural gas a year ago amid a flood of cheap natural gas from shale wells in Texas and New Mexico that prompted a spate of LNG projects along the coast the Gulf.

Lately, however, the industry has begun to lose steam — because of regulations and a federal government that is sympathetic to climate activists who argue that natural gas is even worse for the atmosphere than coal.

In early August, NextDecade announced a $4.3 billion contract with Bechtel Energy to build the fourth train of the Rio Grande LNG facility. The company planned to make the final investment decision in Rio Grande LNG in the second half of this year. Everything was going well. The project has even seen foreign investors come on board, including Emirates Adnoc and Saudi Aramco. Then an appeals court overturned the project’s authorization from the Federal Energy Regulatory Commission.

The court acted claims by several environmental organizations that said the project — and another, Texas LNG — would have a negative impact on the environment and local communities. Environmentalists first approached the Federal Energy Regulatory Commission, which granted a permit to Rio Grande LNG, but after the commission refused to hold another hearing, the environmental group, led by the Sierra Club, went to an appeals court and that court reversed. The FERC permit — and that’s after NextDecade added a carbon capture and storage system to its original design to make emissions as low as possible.

The Rio Grande LNG is therefore delayed, although the first three trains are still under construction. Another LNG project is also delayed, but that has nothing to do with regulators. It has to do with the bankruptcy of its contractor, Zachry Holdings, which was also announced this month and which pushed back the Golden Pass LNG project by several months. According to the Financial Times, the contractor has been feuding with Golden Pass LNG developers over the project’s increased costs.

“LNG plants are energy infrastructure — and building energy infrastructure in America today is difficult,” Kevin Brook, managing director of energy research firm ClearView Energy Partners, said Financial Times.

It’s really hard to build energy infrastructure in America today, especially after the Biden administration imposed what it called a moratorium on new LNG capacity additions following protests from environmentalists who argued that LNG is worse than coal for the climate. A court then overthrow that pause after 16 states sued, arguing that suspending new LNG export permits would hurt the U.S. economy and interfere with gas supplies to European allies trying to wean off Russian gas.

Despite this ruling, growth in the U.S. LNG industry is losing steam as regulatory visibility into the future diminishes and activist pressure mounts. There also seems to be a problem with finding long-term investors. Alaska, for example, is lead an LNG project that has not yet started due to a lack of investors. Another project, Tellurian, has struggled to find investors for its planned $25 billion Driftwood LNG project. Last month, Australian Woodside Energy made a deal to acquire Tellurian for $1.2 billion, and that should give Driftwood a second chance as the Australian major seeks to position itself as a “global LNG power.”

Indeed, big energy players like Driftwood could keep the US LNG industry expanding because they are the only ones who can afford the high price of LNG facilities. Liquefaction projects cost tens of billions in a normal year, and the last two years have seen quite significant inflation, which has not made life any easier for their developers, as illustrated by the Driftwood LNG saga.

The Golden Pass LNG project is led by shareholder Exxon and QatarEnergy. It has a price tag of $11 billion, which is somewhat cheap as LNG projects go. The owners pushed back the project’s start date by six months as they switch contractors, but there doesn’t appear to be another problem with that project, so far.

Rio Grande LNG is in the hands of the court system as NextDecade plans to challenge the court’s ruling on the project. The company also warned that the decision could cast a shadow over the progress of other LNG projects in the country.

LNG demand on a global scale is quite healthy and poised for sustained growth in the coming years and decades. One reason is the growing demand for electricity, including in the United States. The other is the lower emissions footprint of natural gas, as opposed to cheaper coal. The second reason is not the most important, as evidenced by how quickly developing nations have switched from LNG to coal whenever spot market prices have become too high for them. For LNG developers, it’s a battle between demand and activism.

By Irina Slav for Oilprice.com

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