Golden Age for U.S. LNG, or Heading for an Overbuild?
Things are looking up for U.S. liquefied natural gas (LNG) exporters. The Department of Energy (DOE) has resumed export authorizations. Six projects are in the commissioning or construction phase and two of them recently loaded their first cargoes. Woodside took final investment decision (FID) at its Louisiana LNG project in April, and after a revival of contracting activity, several other projects may be close to pulling the trigger. After a period of weaker policy support in Washington, the industry has the wind in its sails. Potential challenges ahead are mostly related to the next LNG market cycle and feedgas availability, rather than the policy climate.
In the past five years, the spotlight on U.S. LNG grew much brighter. When Russia curtailed pipeline gas supplies to Europe beginning in 2021 and invaded Ukraine in 2022, flexible U.S. volumes enabled a huge shift in LNG cargoes away from their original destinations and toward Europe. But a victory lap for the U.S LNG industry was cut short by Biden’s year-long “pause” on new DOE export authorizations. The pause introduced uncertainty and frustration. But amid the backlash, perhaps it also prompted a new recognition of the geopolitical and market significance of U.S. LNG.
Source: Kpler
The tables have now turned, and LNG features prominently in President Trump’s policy agenda as a symbol of “energy dominance” and a source of geopolitical leverage. LNG has also become a bargaining chip in his trade agenda. Prospective buyers from Europe to India to Japan are seeking to defuse tariff threats via promises—if not firm commitments—to buy more American gas.
More significantly, the Trump administration is streamlining the regulatory process through executive orders and new directives. Trump’s DOE calls this a “return to regular order” for export authorizations, and they have a point. The Natural Gas Act requires the department to approve export authorizations to countries with which the United States lacks a free trade agreement (non-FTA countries), unless it concludes that doing so would be inconsistent with the “public interest.” There is a presumption that proposed LNG export projects are in the public interest, so this is a high bar to overcome. The Trump administration aims to approve projects quickly and let the market sort out which eventually are built. This permissive approach is actually a return to the status quo.
The approvals are coming fast and furious. The DOE issued “conditional” export authorizations—reviving a temporary approval type first used in 2011—to Commonwealth LNG and CP2 LNG. Most recently it issued a final export authorization to Port Arthur LNG Phase II, following the end of the public comment period related to last year’s LNG export study. The department is also reversing a change under the Biden administration that essentially blocked extensions of export authorizations for companies that were unable to begin construction within seven years. Congress may also seek to expedite permitting. The mega-bill drafted in May by House Republicans would require the DOE to declare proposed LNG projects to be in the public interest if project promoters pay a $1 million fee. This proposal may not end up in the final budget reconciliation bill, but it indicates political support for faster approvals.
Not all of the Trump administration’s policies have been welcomed by the industry. The U.S. Trade Representative (USTR) introduced restrictions on LNG shipping and penalties on the use of Chinese-built tankers that are unworkable and would raise costs for the industry. And Trump’s steel tariffs raise a serious risk of cost inflation for LNG projects. Perhaps lobbying efforts will help reverse the shipping restrictions for LNG, but Trump seems committed to steel tariffs.
More broadly, despite the momentum for LNG exporters, there are some problems on the horizon. First, the volume of new capacity expected online by the end of the decade—more than 80 million tons per year—suggests potentially limited appetite among global buyers to support more large pre-FID projects. The widely anticipated loosening of LNG market balances expected around the mid-2020s has yet to appear, partly because of the delay of projects including Golden Pass LNG. This is not unusual. LNG supply gluts are often expected but rarely materialize as project timelines often slip. But the question, as always, is how many buyers will be willing to sign firm offtake deals for numerous pre-FID projects vying for their business. Not many sellers can pull off the trick of reaching FID without locking up a significant amount of capacity in long-term deals.
Second, feedgas flowing to LNG export facilities is growing quickly, as shown in a striking chart that Cheniere shared in a recent investor presentation. Already, LNG export terminals consume more than 15 billion cubic feet per day (Bcf/d). This year and in 2026, the ramp-up at Corpus Christi Stage 3 and Plaquemines could draw another 6 Bcf/d. And for the remainder of the decade, the annual draw on new U.S. gas volumes could equal the pace seen during the first LNG wave of 2016-2021. Plenty of companies are confident that gas demand will unlock supply. But can the United States allocate more than 20 percent of U.S. gas supply to LNG export facilities without driving up domestic prices? Increased pipeline takeaway capacity may be essential, but the Haynesville Basin presents worrying production trends and new Marcellus Basin pipelines could be costly.
Third, the volume of supply additions from the United States, Qatar, and other sources by the end of the decade and into the early 2030s suggests price implications. The current supply build-out is simply unprecedented in the history of the LNG sector. At least in the medium term, it seems inevitable that spot LNG prices in Northeast Asia and Europe will reflect looser fundamentals. This is not such a critical issue for LNG sellers with long-term deals in place—including Qatar, given its low production costs and preference for oil-linked pricing. But it may give pause to traders and portfolio players, who in the past few years have helped get U.S. LNG projects over the line. More project FIDs create more margin risk.
Overall, U.S. LNG players are pleased with the policy shift in Washington and see a bright outlook for gas. Some uncertainty and risk is inevitable, but among the energy sources garnering attention in the current policy overhaul by the Trump administration and Congress, LNG seems secure. Market dynamics rather than permitting challenges will dictate how much new capacity will get built, giving the industry more control over its fate.
About the Author
Ben Cahill is Director for Energy Markets and Policy at the Center for Energy and Environmental Systems Analysis, University of Texas at Austin.
