Why Pausing LNG Exports Is Bad Foreign Policy
The recent decision by the Biden administration to pause licenses for export facilities of liquified natural gas (LNG) creates long-term national security risks. According to White House announcement, the decision is aimed at addressing domestic health concerns such as increasing pollution near export facilities, but its timing raises questions.
In effect, President Biden chose to symbolically address domestic price concerns and climate change fears at the expense of national security. This decision is particularly concerning given how the war in Ukraine, conflicts raging across the Middle East, and rising tensions in the South China Sea all interact with global energy security concerns. The ban will not impact short-term projects and exports, but it does have long-term implications, and sends the wrong message at the wrong time about the reliability of the United States as an energy exporter.
First, national security concerns linked to the war in Ukraine create a need for the United States to help backstop sanctioned Russian gas exports. In 2021, before the war, the European Union relied on Russia for 40 percent of its gas needs, equivalent to around 155 billion cubic meters. The United States has emerged as Europe's primary LNG supplier as European nations urgently seek alternatives to Russian energy. The European Union's imports of U.S. LNG surged to 45.6 million metric tons in 2023, a substantial rise from 15.8 million metric tons in 2021, with expectations for further increases in the coming years. In fact, more than 65 percent of the U.S. LNG exports have been directed to European markets last year. Of particular concern, the project most hit by the Biden ban is the CP2 effort in Louisiana, which has two 20-year contracts in place to supply Germany. How can the United States convince Germany to do more to help Ukraine when it is denying Berlin long-term LNG imports needed to offset lost Russian supplies?
This risk will likely increase over the next two years. European weather has been unseasonably warm the last two years, despite severe winter storms in early December 2023. This erratic weather made it easier to substitute for the decline of Russian gas exports: 20 percent in 2022 and a further 56 percent decline in 2023. A return to a normal winter could create an energy crisis in Europe given the correlation between weather and gas prices. In fact, multiple interacting weather factors influence natural gas prices. If the next two years see low rainfall, which reduces hydroelectric output and increases natural gas demand, and a return to average winter temperatures, LNG demands will increase in Europe. Shutting down LNG exports therefore creates geopolitical risk. European countries will have to divert economic resources from supporting Ukraine to make up for higher energy prices. Clean renewal energy sources cannot come online fast enough to offset this demand.
Second, the security risks from limiting the global supply of LNG extend to Asia. The U.S. export pause could produce ripple effects that hit its major treaty partner in the region: Japan. Japan is the world’s second-largest purchaser of LNG. Japanese companies have been foundation buyers for several LNG export projects in the United States, and Japan’s JERA has a 20-year supply contract in place with the now-delayed CP2 project. The Japanese government has expressed concerns about the Biden administration’s LNG export pause.
Considering the current pause in LNG exports will be felt on future projects, rather than ongoing ones, there could be far-reaching implications for geopolitical and energy security in Asia. This is why the risks also extend to another treaty ally: the Philippines. Manila is currently on the verge of a major energy crisis linked to the anticipated decline of the Malampaya gas field, which supplies 30 percent of the fuel to the nation's biggest island, Luzon. This vulnerability is exacerbated by the ongoing disputes in the South China Sea. Efforts to explore potential gas fields in the West Philippine Sea are impeded by China's stance, particularly in areas like the Reed Bank reefs, where energy companies have encountered security concerns that prevent exploration. It is difficult to separate the growing tensions in the South China Sea from the region’s energy demands.
While the Philippines’ current LNG supplies are not coming from the United States, future LNG imports to Philippines are likely to come from the United States, since to date it has signed supply contracts with several traders or aggregators with access to volumes from the United States.
Third, the risk of a broader regional war in the Middle East further amplifies the geopolitical risks of restricting future LNG exports. Shipping insurance premiums have already risen by 20 percent in December and the region sits dangerously close to a larger war based on Iran’s unwillingness—or its inability—to rein in proxy groups. Reducing U.S. LNG exports shifts the burden to other major producers like Qatar to meet global demand making sea lines of communication in the Arabian Gulf all the more vulnerable. A regional war could have implications on ocean shipping, including the potential shutdown of the Strait of Hormuz, where 21 percent of the world’s LNG transits. In other words, now is not the time to take the promise of future LNG exports offline.
Energy projects take years to develop, certainly longer than an election cycle. As a result, signaling that the United States—the leading LNG exporter in 2023—will be reluctant to export LNG in the future causes energy importers to search for alternatives today. Sadly, the alternative may be a longer lifetime for dirtier coal plants and diminished relationships abroad. Considering President Biden’s priorities of U.S. climate leadership and global engagement, this decision could lead to outcomes against those objectives.
Yes, climate change is a reality, and the world needs to reduce emissions. To its credit, the Biden administration made climate change a central policy pillar. It actively sought to mitigate the broader environmental impacts of natural gas, such as methane emissions from the supply chain, by implementing stricter Environmental Protection Agency regulations. Yet the suspension of new LNG export approvals raises questions about its effectiveness in cutting global emissions. Demand for LNG in Asia could lead to increased supplies from countries with potentially higher emissions profiles than the United States. LNG is a cleaner alternative to coal and oil. In terms of CO2, natural gas produces 42 percent less than coal and 27 percent less than oil, making LNG a bridge solution to the climate change crisis while renewal sources come online. All things considered, balancing these climate ambitions with the pressing demands of global energy security, especially in turbulent times, remains a complex challenge for the administration.
Benjamin Jensen is a senior fellow in the Futures Lab at the Center for Strategy and International Studies (CSIS) in Washington, D.C. Yasir Atalan is an associate data fellow in the Futures Lab at the Center for Strategic and International Studies (CSIS).