U.S. LNG Export Boom: Defining National Interests

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A short, spoken-word summary from CSIS’s Ben Cahill on his commentary, “U.S. LNG Export Boom: Defining National Interests."

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This commentary is part of U.S. LNG: Defining National Interests, a project from the CSIS Energy Security and Climate Change Program analyzing the economic, geopolitical, climate, and market implications of the U.S. LNG export boom.

Battle lines have been drawn over U.S. liquefied natural gas (LNG). Environmental groups argue that the boom in LNG exports is incompatible with U.S. climate commitments. They are pressing the Biden administration to deny a key permit for the proposed CP2 LNG project, framing it as “the Biden administration’s next big climate test.” In November, more than 60 lawmakers called on the U.S. Department of Energy (DOE) to reassess how it determines whether new LNG projects are in the public interest. They raised concerns about climate impacts, environmental justice for local communities, and domestic prices.

This is a moment of reckoning for the LNG industry. U.S. LNG exports have had an enormous impact on global gas trade in the past decade, bringing fundamental changes to flexibility, pricing, and flows. However, there is less clarity on the national interests at stake. The United States has only recently become a net energy exporter, overturning key principles that underpinned U.S energy policy for four decades. LNG is now part of a broader debate about the long-term pathway for the United States as a fossil fuel exporter.

Policymakers must grapple with fundamental questions about the role of natural gas in the energy transition, the benefits and drawbacks of growing LNG exports, and the value of U.S. fossil fuel exports in a decarbonizing world. To help illuminate these issues, CSIS is beginning a new research project on the economic, geopolitical, climate, and market implications of the U.S. LNG export boom. This is the first in a series of publications on this theme.

From Zero to Number One

The first wave of U.S. LNG exports began only in 2016 (Alaska’s now-defunct Kenai Plant has not exported LNG since 2015), but the country is now the world’s largest exporter. The United States exported 86 million tons of LNG last year, according to Kpler, following the start-up of Calcasieu Pass LNG and the return to production at Freeport LNG. In December 2023, LNG exports reached an all-time monthly high of 8.6 million tons.

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A massive capacity expansion is also underway. More than 70 million tons per year (mmtpa) in baseload export capacity is under construction at Golden Pass, Corpus Christi Stage 3, Plaquemines, Port Arthur, and Rio Grande. Three of these projects reached final investment decision (FID) last year, attracting $40 billion in debt and equity financing. By 2028, the United States is slated to reach more than 160 mmtpa of export capacity—more than double the current output of Qatar, the world’s second largest exporter. The United States and Qatar alone could account for 80 percent of global supply additions by 2030. And this is not the end of the story. Eleven proposed projects have been fully approved by the Federal Energy Regulatory Commission (FERC) and the DOE. FERC issues permits for siting, construction, and operation of LNG facilities, and the DOE grants authorizations for exports to countries with which the United States lacks free trade agreements (non-FTA countries). Several other projects are aiming for FID this year, including a few with pending DOE approvals for non-FTA exports.

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Why U.S. LNG Is Different

The stunning growth in U.S. LNG exports shook up the global gas industry over the past decade, altering flexibility and pricing structure in ways that have affected all major producers and consumers. Most U.S. LNG has been sold on a “free on board” basis, meaning that buyers take ownership of cargoes at the export terminal and arrange shipping. U.S. sellers typically offer destination flexibility, so buyers are free to send cargoes wherever they are needed and can command the highest price, provided that such exports are consistent with U.S. laws. And many LNG buyers value the opportunity to secure gas from North America, to increase exposure to Henry Hub prices in their portfolio alongside oil-linked pricing from other suppliers. Pricing formulas in early U.S. LNG export deals included the gas price (typically, the prevailing Henry Hub price plus a 15 percent surcharge), plus liquefaction fees, plus freight. More recently, there have been many variations in commercial terms. (It is important to note that while U.S. LNG buyers may benefit from lower prices and flexibility, gas prices for their downstream consumers can reflect various price indices and formulas, so it is not necessarily true that U.S. gas is cheaper for end users).

The combination of fast-growing U.S. LNG volumes and greater destination flexibility has contributed to a more fluid, commoditized global gas system. The LNG industry was built on long-term contracts—typically lasting 20 or more years—and point-to-point sales. Traditionally these arrangements were necessary to reduce risk and unlock financing for costly export terminals and associated upstream and midstream developments and shipping. The U.S. natural gas boom did not erase these features of global LNG, and other factors forcing an evolution were already at work. But U.S. LNG changed the game. The nature of U.S. LNG facilitated the rise of “portfolio players” or aggregators, who have a large pool of contracts for both procurement and sales of LNG. Portfolio players make up a growing share of U.S. LNG supply deals.

Recent events demonstrated the unique aspects of U.S. LNG. Russia’s curtailment of pipeline gas supplies led to a dramatic increase in European gas and electricity prices in the second half of 2021, and its war on Ukraine since February 2022 created even more severe challenges. Strong price signals in Europe attracted supply, and European LNG imports rose by 60 percent in 2022. U.S. LNG met much of this demand. Although Asia had previously been the main destination for U.S. LNG exports, about two-thirds of cargoes over the past two years ended up in Europe. Without growing volumes and flexible supplies from the United States, it would have been much more challenging to accommodate these shocks, and there would have been a massive price discrepancy in the Atlantic and Pacific basins. The United States now plays a critical balancing role in the global LNG market, adding supply and flexibility that has boosted global energy security.

LNG in the Spotlight

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Despite the rapid growth of U.S. LNG exports, the industry has largely flown under the political radar. There is strong support for export projects in the LNG heartland of Texas and Louisiana, and concerns about the domestic price impact have faded as domestic supply remains robust. In recent years, the energy security benefit of U.S. LNG exports seemed to overshadow associated climate concerns. However, this picture is changing.

In the early days of U.S. LNG, the idea of exporting gas was controversial. When pioneers like Cheniere first proposed LNG exports to take advantage of anticipated surplus gas from the shale revolution, there were concerns that gas exports would drive up domestic prices for industrial users and households. The DOE commissioned several studies on this topic from 2012 to 2018. Those reports generally concluded that the impact of expanded LNG exports on domestic gas prices would be limited. A 2018 study, for example, estimated that in a scenario of relatively low costs and high resource availability, even exports of 22 billion cubic feet per day (about 167 mmtpa) by 2040 would produce Henry Hub prices in the range of $4 to $6 per million British thermal units (MMBtu). However, that study predicted higher domestic prices in a scenario of higher production costs and lower resource availability.

In the past five years, LNG exports have not driven up U.S. gas prices as some feared. Natural gas output has only continued growing in the Marcellus, the Permian Basin, and elsewhere. In November 2023, U.S. dry natural gas production reached an all-time high. So far, abundant natural gas supplies have satisfied domestic demand, supported LNG exports, and enabled a sharp increase in pipeline gas exports to Mexico. Henry Hub prices averaged $2.57 per MMBtu in 2023, down by more than 60 percent from the previous year’s average, and below the 2010–2015 (pre-LNG exports) average of $3.64 per MMBtu.

Still, a near-doubling of LNG export capacity by 2028 suggests a need to re-examine the potential price impacts. Already gas flows to LNG export facilities exceed 14 Bcf/d—equivalent to about 13 percent of U.S. dry gas production. Within five years, LNG facilities could consume 20 percent of U.S. natural gas supply. It is reasonable to ask about the potential impact on other industries.

The greatest objection to LNG exports, however, centers on climate concerns. Critics argue that expanded LNG exports will extend the pathway for fossil fuels, encourage more domestic exploration and production, and undermine U.S. climate commitments. They assert that the methane emissions associated with production, processing, transportation, and liquefaction of natural gas make the lifecycle emissions of LNG exports even worse than coal, although the assumptions underlying these estimates are questionable. Critics of new LNG projects also argue that building plants with a lifespan of 25 years or more will lock in gas consumption for decades, conflicting with long-term climate goals. The LNG industry—after touting its role in helping Europe survive a near-cutoff of Russian gas—now faces new scrutiny.

Addressing Emissions Associated with U.S. LNG

The Biden administration has taken important steps to curb methane emissions from oil and gas (see the 2022 CSIS report, “Transatlantic Efforts to Cut Methane Emissions”). In December, the U.S. Environmental Protection Agency (EPA) issued its final rule to reduce methane from oil and natural gas production. The agency aims to issue a final rule on revised reporting requirements for upstream and midstream companies under the Greenhouse Gas Reporting Program by August, following a draft rule introduced last year. Those requirements are linked to the methane fee in the Inflation Reduction Act, which introduced a “waste emissions charge” on pollution above certain emissions intensity thresholds for oil and gas production and nonproduction facilities.

The White House is also working with other countries to develop new tools to monitor and drive down emissions across gas supply chains. The United States, the European Union, and numerous other countries are working to develop a framework for measurement, monitoring, reporting, and verification (MMRV) of greenhouse gas emissions across gas and LNG supply chains. If realized, such a framework could establish a transparent, credible system for reporting emissions data from production to delivery. These are complex issues and much of the technical work is just beginning. But past efforts to assess the emissions intensity of LNG cargoes—such as “carbon-neutral” or carbon-offset LNG deals—have suffered from a lack of transparency. Creating a robust system to determine the emissions intensity of LNG could potentially create a competitive advantage for U.S. sellers. U.S. LNG companies may be wary of the complexity of this effort and the associated compliance and reporting costs. But they should also perceive an opportunity to make a stronger climate case for gas.

Finally, last April the DOE made a policy adjustment on export authorizations with some important implications for future projects. The DOE will not extend non-FTA export authorizations beyond an initial seven years unless authorization holders have commenced construction on their facilities and encountered extenuating circumstances. The DOE cited a need to clear up the “authorization overhang” of projects that have been fully approved but unable to reach FID. It suggested that the long list of fully approved projects created obstacles for new entrants, including “those that seek to utilize newer technology and to adopt better environmental practices.” This suggested a DOE preference for projects that will achieve lower emissions intensity, for example by using carbon capture and storage or clean power procurement for facilities. It was a subtle change, but nonetheless signaled a shift in how the DOE analyzes the public interest associated with new LNG projects. Still, this policy change only concerns extensions of export authorizations. Many environmental groups are pushing for a hard stop on any new approvals.

U.S. LNG and National Interests

Inevitably, there are tradeoffs associated with U.S. LNG exports. Good public policy depends on examining these factors and anticipating how they will evolve in the coming decade. In the coming months, a series of CSIS publications will examine implications of the LNG export boom.

Key focus areas will include the geopolitics of U.S. LNG, including its effects on global gas trade and flows, as well as the potential role of U.S. LNG exports in future trade and economic relationships, including those in the Indo-Pacific. Another key theme will be the domestic market, gas prices, and economics. This analysis will focus on how U.S. LNG exports affect domestic energy security and prices. It will examine important questions related to domestic gas supply and will cover projected gas demand growth in the power sector, industry, and households. Another publication will look at emissions and climate concerns, examining the current state of knowledge regarding the emissions intensity of U.S. LNG at the cargo or operator level, as well as tools necessary to assess emissions intensity across U.S. LNG supply chains. Finally, CSIS will examine regulations and public policy related to LNG exports, especially current requirements of government agencies under the Natural Gas Act. With the massive growth in U.S. LNG exports, is there a need to re-examine how individual projects serve the public interest or how this sector should be regulated? CSIS will analyze the net benefits and social costs associated with U.S. LNG.

This is an opportune time to consider the national interests associated with U.S. LNG, the market and geopolitical implications of this industry, and the climate concerns that should guide decisionmaking.

Ben Cahill is a senior fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.

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Ben Cahill
Senior Fellow, Energy Security and Climate Change Program