Will policymakers kill the goose that lays golden eggs?
It has become legendary that the initial LNG terminals in the United States were built for import purposes. For several decades, the United States functioned as a major importer of energy products, a legacy of policies aimed at restricting the utilization of domestic energy resources. Initially, natural gas was not regarded as a significant energy source; it was often flared as a byproduct of oil extraction. However, subsequent policy reforms facilitated the United States’ transition to a significant exporter of LNG. Nevertheless, there exist potential policy challenges that could jeopardize the advancements the United States has achieved in this sector.
The first policy challenge encountered by LNG was a moratorium on the approval of new terminals instituted by the Biden administration. This policy has been in effect for about a year, and will likely to be rescinded by the incoming Trump administration. Nevertheless, the emergence of LNG export as a partisan issue in the United States may have created a deterrent effect on prospective investments. The opportunity costs of the Biden administration’s freeze are challenging to quantify. Although the outlook for LNG appears promising under the Trump administration, investment decisions of this magnitude cannot be made on a cyclical four-year basis.
Parochial concerns can significantly influence the LNG industry. Proponents of the U.S. maritime industry have previously introduced legislation in the past several congresses to restrict export of LNG to U.S. flagged vessels. The intent of such legislation is to strengthen the domestic American industry and ensure that the U.S. merchant fleet is equipped with qualified vessels and personnel capable of operating within the LNG sector. However, this legislative approach may render U.S. LNG less competitive on a global scale by increasing the costs and risks associated with U.S. LNG exports. Although this proposed legislation is set to expire at the conclusion of the current Congress, the spectre of such measures may exert a chilling effect on LNG exports.
One significant area of policy that may influence U.S. liquefied natural gas (LNG) exports is the imposition of sanctions. Following the invasion of Ukraine, U.S. LNG exports experienced a substantial increase due to the sanctions imposed by the European Union, the United Kingdom, and the United States against the Russian Federation. If U.S. sanctions against Russia were to be eviscerated, as some analysts predict may occur with the advent of the Trump administration, it is possible that U.S. LNG could experience a decline in market share. Additionally, it would be noteworthy to consider the implications if the United States were to lift sanctions against Ukraine while the European Union maintained them.
In sum, both the United States and the shipping industry have reaped benefits from the increase in U.S. LNG exports over the past two years. However, coordinated initiatives by U.S. policymakers to restrict future LNG exports may potentially diminish the prominence of U.S. LNG in the market.