The LNG Freeze Limbo: How the US Export Pause is Reshaping Global Gas Dynamics
The Biden administration recently suspended granting permits for new liquified natural gas (LNG) imports, which will likely have major impacts on global energy security, especially for the European Union (EU). The move comes amidst growing protests against the Biden administration over its lacklustre plan to make a swift transition to green energy ecosystems. As per the White House, the decision aims to address domestic health concerns, such as increasing pollution near export facilities. However, the timing of the decision raises serious concerns, especially as the US’ European allies grapple with energy shortages since the Russian invasion of Ukraine 2 years ago.
The EU has been greatly dependent on LNG exports from the US in dealing with energy shortages following its decision to stop Russian exports. For instance, in the first half of 2023, the US exported more liquefied natural gas than any other country – 11.6 billion cubic feet a day. That same year, 60 per cent of US LNG exports were delivered to Europe and 46 per cent of European imports came from the US. This abrupt decision by President Biden, prioritising domestic concerns over international energy security and stability, is a long term challenge for US allies in Europe, as well as in Asia.
Despite the EU having fairly dealt with the energy shortages, a potentially long, harsh winter season later this year could further complicate the entire scenario, given the strong correlation between weather and gas prices. Winter conditions are, thus, likely to increase LNG demands, thereby increasing gas prices. Hence, shutting down gas exports to Europe is likely to accelerate geopolitical risks. This would imply diverting economic supply by the EU for Ukraine to deal with the impending energy crisis.
Many of the developing economies in Asia have traditionally been heavy consumers of coal and fossil fuels, primarily due to a lack of infrastructural capabilities to harness renewable sources of energy. Early LNG developments, especially in South East Asia were spurred on by the 1973 oil shock, which brought the need to diversify away from Middle Eastern oil for power generation. Consisting of many developing economies, countries in Asia wanted to rely on a stable and efficient partner to develop their energy ecosystems running on a fair share of LNG exports. Being the largest exporter of LNG in the world, the US was seen as “the reliable partner.” Hence, the recent announcement by the White House has been taken seriously in Asia, given that it might hinder the progress of capacity expansion projects in the region.
Moreover, one of the US’ strategic allies in the region, Japan, could be hit extremely hard by the recent development, given that it is the world’s second-largest purchaser of LNG, with a huge proportion of the imports coming from the United States. Several Japanese companies, especially JERA, have been foundation buyers of LNG export projects and this announcement is likely to hinder their business prospects in the present and the future. Moreover, the future implications of the pause are even more disastrous for the other allies of the US, especially smaller countries like the Philippines, which is currently undergoing energy shocks. The Philippines relies heavily on the electricity and natural gas acquired from the Malampaya gas field. This reserve is expected to run dry in 2027, causing an energy crisis. The nation must now choose between transitioning to renewable energy or continue to rely heavily on the exploration of conventional energy sources which would make them drift further apart from their commitments towards cutting down carbon emissions. The leadership in Manila initially looked to the United States to provide initial relief over its impending energy crisis by importing LNG reserves from the US. However, the latest White House decision will very well make the Philippines’ political leadership exhibit signs of perplexity and look for other alternatives as the Southeast Asian nation continues to grapple with an ongoing energy crisis which is likely to turn worse in the upcoming years.
While the decision might highlight the US’ decision to deal with environmental concerns and climate change issues, the abruptness of the decision is likely to raise serious doubts among the allies over Washington’s reliability to help them cope with the ongoing energy crisis, made worse by a sluggish global economy in the aftermath of the COVID-19 pandemic. The move is likely to lead its partners to export LNG from other countries, which have a higher profile of emitting carbon emissions than the US.
This may also prompt countries to rely heavily on the use of coal and fossil fuels, thereby reversing the trend of actively exploring cleaner energy alternatives. With the global community facing an incoming climate emergency, substantial hope was placed on developed, industrialised countries of the north to create a strong base for the developing economies of the global south to make a transition towards cleaner energy ecosystems.
The US, with one of the largest reserves and the largest exporter of LNG, was seen as the “responsible leader” to effect this transition and, at the same time, stand shoulder to shoulder with struggling economies to deal with the contemporary energy shortage predicament. With ongoing geopolitical crises, the perception of the “pause” being indicative of breaking commitments to international partners and allies, cannot be undermined, in a year that is likely to decide the fate, political will, and the “ability to lead home and abroad amidst challenges” of the incumbent US president.
Featured image by Maciej Margas: PGNiG archive, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=90448259
North African Energy Market Analyis: Libya
On the 3rd of July, Khalifa Haftar, head of the Libyan National Army, threatened to use armed force unless the politically fragmented country could agree on a mechanism for the “fair” distribution of oil revenues. The deadline set by the military leader is 31 August (today). The potential for another civil war is high and this will have large implications for major commodity markets like crude oil as well as natural gas. The intervention of regional and extra-regional powers further complicates Libya’s chaotic political situation, with different countries backing opposing governments.
Read here for London Politica’s latest report on the situation in Libya, a collaborative analysis from team members from Global Commodities and MENA Watch research programmes.
Decoding TotalEnergies’s massive $27 billion dollar deal with Iraq
On the 10th of July 2023, French major oil company TotalEnergies and the Iraqi government finally signed a much delayed $27 billion dollar energy deal, directed towards increasing the country’s oil production capacities by developing four oil, gas, and renewable projects. The signing of the deal, named the Gas Growth Integrated Project, took much longer than expected owing to several key reasons. First, a number of Shi'ite lawmakers had also cried foul over the deal, pointing to the lack of transparency and absence of bids from other oil companies. Another significant setback in the initial days of negotiation arose from TotalEnergies rejecting the now abolished Iraq's National Oil Company (INOC) as its partner in the project, mainly due to its lack of full legal status from the new Iraqi government. Iraq’s state owned Basrah Oil (BOC) will now be a partner in the project. The main hindrance to the project stemmed from sharing of revenues, which was finally resolved when Iraq agreed to take a stake in the project of 30 percent, in place of initial demand of 40 percent, giving majority stake to the French company.
Despite initial hiccups, the deal is seen as a welcome move both overseas and at home, one that will optimistically put Iraq on the path towards achieving energy sufficiency and helping to improve the business climate and attract further foreign investment. Iraq holds the world’s fifth largest proven oil reserves at 145 billion barrels, representing 8.4 percent of global reserves. Iraq’s potential as an oil producing nation has been held back due to years of sectarian violence, lack of transparency, governance, and poor environmental laws, leading to the withdrawal of many oil majors from the country. Exxon Mobil, Shell and BP have all scaled back their operations in recent years.
The launch of the Gas Growth Integrated Project is a watershed moment in Iraq’s history. The deal will see TotalEnergies intensify its efforts to increase gas production in the Ratawi field in the oil rich Basra region. This will help reduce Iraq’s reliance on gas imports from neighbouring Iran. For a long period of time, Iraq has relied on its neighbour for electricity and gas imports. Iran uses this as a leverage to exert influence on Iraqi politics. Iran, in the past and in the present, funds the training of the Popular Mobilization Forces, a paramilitary group trained to flush out the remaining US troops and anti-Iranian Kurdish elements that have operated in the northern region of the country. All of Iran’s initiatives are aimed towards keeping Iraqi and the American governments on its heels and exerting its influence in the region where the US has sought, from time to time to forge alliances and partnerships in order to nullify Iranian clout. Iran is a significant partner for Iraq in terms of trade and development prospects, with the latest breakthrough being in the railways sector. An MOU had been signed in March 2023, outlining executive procedures for establishing a rail connection between the two countries. Iran is making significant inroads into Iraq's economic landscape, creating an opportunity to invalidate America’s significant investments in the region. Iran’s economically driven shrewd tactics, such as these, will likely help to negate the US influence in the region as a whole and compel the US to rethink on its sanctions against Iran given that the commercial interests are at stake.
It appears that the US has also sought help from its Middle Eastern allies to hold back Iran’s ascendancy into Iraqi soil. Keeping its political differences aside, Saudi Arabia’s ACWA has agreed to develop The 1 GW solar power plant project in collaboration with TotalEnergies. The project seems to be part of the Iraqi government’s long term plan of solving electricity supply woes through installation of renewable sources. A portion of the revenue generated from the Gas Growth Integrated Project will be used by the French company to fund three additional projects: 1 GW solar power plant; a 600 million cubic feet a day gas processing facility, and a seawater project to boost Iraq’s southern oil production.
From the outside, the establishment of the solar power plant is a welcome move towards advancing Iraq on the path of self-sufficiency through sustainable modes of energy production. At the same time, it also appears to be a well crafted move by the Iraqi leadership to deviate attention from the environmental hazards that oil majors in Iraq have already created over a substantial period of time. Prior western oil majors have caused significant water shortages and pollution during its operations. The same environmentally catastrophic outcomes are likely to happen when TotalEnergies drives its efforts to increase production in the Ratawi oil field.
Past records also demonstrate that plants used by oil companies including BP and ExxonMobil accounted for 25% of the daily water consumption in a region of almost 5 million people. This leaves significantly less water for agriculture and other activities upon which the local rural communities are dependent upon. The harmful affluents emitted as a result of gas production has already affected the health of the residents in Iraq’s Basra region, with cancer rates having significantly grown in the region. While the deal has been projected to herald a new dawn in Iraq’s history, what remains to be seen is the possibility of the deal causing more harm than good to the Iraqi people in the long run.