The Generational Opportunity For US LNG
Understanding the LNG Process
Natural gas doesn't liquify itself under normal conditions. When it is extracted from the ground, it must be captured immediately. It is then transported via pipeline to a processing plant, processed, and then fed into another pipeline. The gas is then transported to a liquefaction facility where it is super-cooled to 260 degrees below zero (Fahrenheit) and becomes a liquid. But that's not all. After liquification, the gas is loaded onto a specialized ship, an LNG carrier, and transported across the ocean to a regasification facility. It is then regasified, fed into another pipeline, and delivered to residential customers to warm their homes or cook their food, to power plants to generate electricity, and to factories as a raw component in the manufacture of various commodities.
The Success of the American LNG Market
The American economy has seen outstanding success in breaking into the global LNG market, a generational endeavor. The technical sophistication required to master the liquefaction, transportation, and regasification of this vital hydrocarbon is not trivial. Each LNG cargo represents the fruits of years of permitting and construction, the investment of billions of dollars, and the negotiation of contracts that will be in force for decades. These operations have long-term relationships and impacts.
The Impact of the Biden-Harris Administration
The arrival of carriers laden with American LNG to Europe in the months following Russia's invasion of Ukraine in 2022 was celebrated by the Biden-Harris administration. These ships metaphorically set sail a decade earlier, as LNG export terminals navigated the federal regulatory process. However, the current administration's decision in January 2024 to pause most export approvals until the completion of economic and environmental studies has already damaged the trustworthiness of American natural gas supplies. Japan, a close ally and important customer for LNG, was the first to voice concerns.
The Risk of Regulatory Uncertainty
Regulatory uncertainty leads to higher costs, longer and delayed timelines, and potentially disrupted supply chains. Turning off LNG exports could cause a series of dislocations throughout the economy, not just in the export sector. The nation's dominant position in natural gas, which took a generation to achieve, is now at risk. While the next president could lift the pause on approvals, this would have to be done carefully to mitigate the risk of litigation. Only Congress can provide a permanent solution.
Bottom Line
The US LNG industry represents a generational opportunity for the American economy. However, regulatory uncertainty and policy changes can pose significant risks. What are your thoughts on this matter? Do you think the current administration's decisions will have long-term impacts on the industry? Feel free to share this article with your friends to hear their views as well. Don't forget to sign up for the Daily Briefing, which is every day at 6pm.
