The recent pause on approvals for proposed liquefied natural gas (LNG) terminals by the Biden administration is a move that could protect the United States economy and save American consumers billions of dollars. This pause allows the U.S Department of Energy to assess the impact of LNG exports on climate change and consumer costs. According to analysis conducted by New Energy Innovation, this pause could potentially shield American consumers from up to $18 billion in additional annual energy costs resulting from volatile gas prices.
The main issue behind these price spikes is clear: the construction of new LNG export terminals allows oil and gas companies to send more gas overseas to the highest bidder, without considering the cost to U.S. consumers. This situation has already resulted in higher energy prices for Americans, with LNG exports responsible for $14 billion in increased energy costs. Furthermore, gas price spikes have cost the American people an estimated $111 billion between September 2021 and December 2022.
While it has been argued that increased LNG exports are necessary for the energy security of European allies in the face of Russian aggression, this reasoning is misleading. The reality is that the existing import terminals in Europe are underutilized, and European gas consumption has actually decreased. Therefore, the near-term import needs of Europe are already covered. Building new LNG export terminals only serves to lock in long-term climate pollution and consumer costs, without addressing immediate needs.
Moreover, without the pause on LNG export terminal approvals, there is a risk that LNG exports could flow to countries that oppose U.S. national security interests. In fact, from January 2022 to September 2023, China was the top destination for new American LNG contracts, accounting for 13% of the global total. This raises concerns about the potential diversion of LNG exports away from countries that need them for energy security.
It should be noted that the economic motivation for oil and gas companies to increase LNG exports is not to ensure abundant domestic energy supplies, but rather to maximize profits by selling gas to other countries. The U.S. fracking boom has significantly increased energy supplies, making the country the largest gas producer in the world and a net gas exporter since 2017. However, the focus has shifted from domestic energy security to profiting from international markets, even at the expense of American consumers.
The consequences of increased LNG exports have significant impacts on American households, businesses, and industry. First, U.S. electricity prices would rise because natural gas-fired power plants determine power market prices for most regions. This would directly affect consumers' energy bills. Second, the majority of Americans still rely on gas for heating their homes, making them vulnerable to price spikes caused by LNG exports. Low-income households, in particular, bear the burden of increased heating costs, as they spend a larger portion of their total income on energy bills compared to the rest of the population. Third, higher gas prices also impact manufacturing costs and economic competitiveness, which could be detrimental to the industry.
To better understand the potential consumer benefits, Energy Innovation conducted a modeling analysis in collaboration with Jesse Jenkins from Princeton University. The results indicated that approving and building all currently paused LNG export terminals could lead to a 9-14% increase in gas prices per year in the medium term. This would result in an additional $11-$18 billion in annual gas costs for U.S. households, businesses, and industry. Admittedly, the exact expenditures may vary as producers adjust output to meet demand over time. However, the potential economic burden on consumers is significant.
Importantly, the environmental impact of increased LNG exports cannot be ignored. The lifecycle emissions associated with LNG exports to Europe and Asia, including extraction, transportation, combustion, and leakage along the supply chain, may be at least 24% higher than emissions from coal extracted and burned in those regions. Given the current climate crisis, it is unwise to lock in new emissions at a rate worse than burning coal, especially when we are experiencing the hottest year on record. Adding $18 billion in additional consumer costs when many families are already struggling financially seems counterintuitive.
Contrary to claims about European energy security needs, the U.S. is already surpassing its LNG commitments to Europe, and demand is actually declining. The average utilization rate of European LNG import terminals in 2023 was only 58%, and by 2030, U.S. export capacity will be 76% higher than Europe's projected demand. The European Commission has even stated that the pause on LNG export capacity expansion will have no short-to-medium-term impact on the EU's security of supply. Europe is actively strengthening its energy security by expanding clean energy sources and enhancing energy efficiency.
The pause on LNG export approvals raises the question of where the excess gas will go if not to Europe. In Europe, imported LNG is increasingly being used for powering new plastic manufacturing facilities rather than for residential heating. Outside of Europe, LNG is flowing to countries without fair-trade agreements with the U.S., such as China, which has been increasing its long-term LNG import contracts globally since 2022. The evaluation during this pause period will determine whether LNG exports to non-Free Trade Agreement countries are in the 'public interest' as required by the Natural Gas Act.
It is worth noting that fossil fuels have contributed significantly to U.S. inflation in recent years, with gas prices being more volatile than oil prices due to various factors such as extreme weather events, production decisions, and conflicts. By limiting export capacity, the U.S. can ensure that gas prices remain affordable for its own population. In fact, domestic gas prices have already fallen to a 52-week low since the announcement of the LNG pause.
The motivation of oil and gas companies to construct LNG export facilities solely for increasing profits, regardless of the consequences for national security or the climate crisis, is concerning. The pause imposed by the Biden administration is a step in the right direction for both the climate and American consumers. It is high time to shift away from fossil fuel dependency and prioritize the well-being of both the environment and the people.
