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Hello from Houston.
Big Oil kicked off earnings season today. Shell was the first supermajor out of the gates reporting their full-year earnings.
Analysts expect a similar slide from 2022’s highs for ExxonMobil and Chevron when they follow suit tomorrow.
Ahead of their earnings, Jamie and I took a look under the hood at Chevron, which has come under fire on a number of fronts lately: from from operational hiccups in Kazakhstan and the US to criticism that it has fallen to the back of the pack on climate.
Today’s newsletter looks at a subject that has been the source of much consternation in the US over the past week: President Joe Biden’s decision to freeze permitting for new liquefied natural gas infrastructure.
Behind the outrage and political posturing, what does it actually mean for the industry?
Thanks for reading — Myles
Cutting through the noise on Biden’s LNG export freeze
Last week, Biden announced the most significant intervention in US LNG in a decade.
The president paused new licenses for export terminals while his administration reassess how best to determine whether additional infrastructure is in the “public interest”.
Since the announcement — which the White House said was driven by concerns over climate, energy security and fuel costs — there has been a surge of hot takes from every side of the debate.
A vocal response
Democrats and climate campaigners (and some in the gas-guzzling domestic manufacturing industry) lauded the move. Republicans, LNG developers and others in the the oil and gas industry writ large slammed it.
This was Frank Pallone, the ranking Democrat on the House Energy and Commerce Committee:
“Before we send our energy resources abroad, it is only right that we first confirm doing so will benefit Americans — not our competitors.”
And this was his Republican opposite number, committee chair Bruce Westerman:
“It’s a policy that is shortsighted political pandering and will do nothing but drive the cost of energy even higher.”
In some ways, say analysts, both are right. There is little doubt that the move is designed to woo climate activists ahead of an election year — and energy-cost conscious consumers.
But given the explosion in US exports over the past eight years — the US last year became the world’s biggest LNG exporter — it seems reasonable to take a step back and study their impacts as has been done at previous points in the industry’s lifetime (though arguably this could have been done without immediately freezing new permits).
What will the actual impact be?
In the near term, not much.
The US’s seven operating terminals can produce as much as 87mn tonnes of LNG a year — enough to satisfy the combined gas needs of Germany and France — and five more projects already approved and under construction will add another 63mn tonnes of capacity by 2028.
If anything it is a boon for the incumbents, shutting the door behind them, at least for a little while. It is the 17 projects awaiting approval that will feel an immediate impact. But their impact on supplies was not going to be felt until the end of the decade (if they come online at all).
Giles Farrer, head of gas and LNG asset research at Wood Mackenzie, said:
“The decision will not affect our forecast for US LNG exports out to 2028, but after that it could affect the trajectory and pace of the sector’s growth and have potential to tighten the market in the long run.”
The problem for would-be exporters is that if their projects are put on hold indefinitely, the buyers they have signed up will start to look elsewhere. And without buyers, getting financing to reach the critical final investment decision becomes an issue.
“Legally it’s the contracts that are the issue,” said Jason Bennett, a leading lawyer in the space and partner at law firm Baker Botts. “If it goes on for two years it’ll be a real problem. If it goes on for six months we’ll see.”
How long will it last?
This is the critical question — and the answer is at best unclear.
The White House was exceedingly vague in its announcement as to how long it would take to carry out the study. But no one is expecting a return to licensing ahead of the November election.
James Lucier at Capital Alpha suggested that between studies and a subsequent comment period it could be beyond May 2025 before the Department of Energy issues its next license.
But he noted that in some ways the lack of detail — and of any explicit mention of a lengthy rulemaking process — was, for now, “actually a hopeful sign for potential LNG exporters”. He added:
“On the whole, we think it is better to have a pause that, on the surface, appears to be about election-year politics, rather than a formal rulemaking leading to final rule that would be more restrictive than current practice.”
Then again, if Biden loses out to Donald Trump in November, the former president has already vowed to restart approvals on his “very first day back”.
Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the FT’s global team of reporters. Reach us at email@example.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.