Eric Kayne/AP Images for Movement Catalyst
Environmental justice advocates outside the Federal Energy Regulatory Commission in Washington last year urged regulators to protect Black communities from the dangers of liquefied natural gas.
The Biden administration’s decision to pause new permits for liquefied natural gas (LNG) export terminals while it explores whether the projects’ climate, consumer, and community impacts are in the public interest will not really prevent the United States from exporting LNG. In fact, because of the construction of export facilities already approved before the pause, expert analysis shows that LNG exports will double or even triple over the next five years. The U.S. is already today the largest LNG exporter in the world, though it commenced exporting only in 2016.
These facts contrast sharply with the warring set of opinions on the Department of Energy’s (DOE) current pause, either triumphantly claiming victory for the climate or condemning the “cutting off” of LNG exports as counterproductive. But that’s not to say that the administration’s announcement will have no impact.
For the time being, it has disrupted the biggest effort to create a long-lasting market for LNG to date: using U.S.-sourced gas at Mexican export terminals to supply growing Asian demand. Many Mexican terminals, which are at varying levels of permitting, are caught up in the pause, and this has chilled investment decisions.
The oil and gas industry’s counteroffensive has been to look to other parts of the government to facilitate its long-term energy play. “It’s a Big Oil attempt to pry open the jaws of the global marketplace to toss more fossil fuels down our throats,” said Lukas Ross, deputy director of the Climate and Energy Justice Program at Friends of the Earth.
The latest development took place yesterday at the Federal Energy Regulatory Commission (FERC), which at its monthly meeting approved the Saguaro Connector Pipeline, which will send billions of cubic feet of gas from the Permian Basin in Texas into Mexican export facilities. FERC dramatically minimized its interpretation of its jurisdiction over the pipeline project, most of which goes through Mexico, to only the 1,000 feet on either side of the U.S.-Mexico border. The State Department has also approved the pipeline project, which means it has final approval.
The House of Representatives also voted on Thursday, mostly along party lines, to reverse the pause in approvals by giving FERC the exclusive authority under the Natural Gas Act to approve LNG export terminals. The Senate is unlikely to follow suit.
By getting the LNG pipeline approved at FERC, even while approvals for LNG export terminals are on pause, oil and gas interests can make the case that the DOE should lift the pause and align itself with the other agencies within the government. It’s a high-stakes battle about whether we build assets now that are likely to deliver natural gas exports, with the attendant methane and other emissions and health risks for vulnerable communities that will last for decades.
On January 26, the Department of Energy announced the pause on new permits for 17 pending facilities.
Critics called FERC’s action a familiar rubber-stamping of industry wishes over the public interest. “It’s common knowledge FERC works for big oil and gas, not the people. This was a predetermined decision,” said Bill Addington, a rancher with the Sierra Blanca Legal Defense Fund, in an emailed statement.
That tendency could continue well into the future after last week’s elevation of commissioner Willie Phillips, a former corporate lawyer who routinely advanced oil and gas demands at the District of Columbia’s Public Service Commission, to FERC’s chairmanship. Biden’s announcement, just one day after a Senate Energy and Natural Resources hearing on the LNG pause, was welcomed by the committee chair, Sen. Joe Manchin (D-WV). “Throughout the last year overseeing a very productive and bipartisan FERC … Phillips has proven time and time again that he was the right person to lead this ever-important agency from the start,” said Manchin, who refused to grant the previous chair, Richard Glick, a renomination hearing because of his perceived concerns about climate impacts.
While Phillips was elevated to the chair, Allison Clements, seen as the only pro-climate voice on FERC, announced that she would not seek a second term. That paves the way for a business-friendly approach on FERC that some believe looks suspiciously like a trade, where Manchin tempers his anger on the pause in exchange for regulatory personnel favorable to his interests even beyond his tenure in the Senate, which ends this year.
“If you listen to Manchin closely at that hearing, he was not as unhinged in his attacks as normal,” said Tyson Slocum, director of Public Citizen’s Energy Program. “The only thing that makes sense to me is some sort of deal with the White House and Manchin.” That calls into question the role of the pause itself, and whether the White House will back the effort to evaluate whether it makes sense to build long-lasting LNG infrastructure.
THOUGH MUCH OF THE DISCUSSION about the LNG pause has cited Europe’s acquisition of natural gas to compensate for Russian decreases, the future growth of LNG demand clearly comes from Asia and particularly China, which imported more gas than any other country last year. A report this week by oil giant Shell estimated 50 percent growth in global LNG demand, with Asian growth set to nearly double by 2040, according to an analysis of long-term contracts already signed. Europe’s consumption has actually declined recently, but China and Asia’s rapid shift from coal has boosted LNG needs.
This has U.S. oil and gas companies salivating, but there is a major problem: a lack of export capacity on the Pacific coast. Most of the current terminals are in the Gulf of Mexico, and getting from there to Asia slams into a major bottleneck at the Panama Canal, where drought conditions have dried up the artificial lake that keeps shipping moving.
“If you want to move any product, including LNG, to where the long-term growth market is in Asia, the canal is a long-term liability,” said Slocum. Increasing LNG export capacity on the Pacific coast solves that problem. But Mexico’s declining oil and gas industry cannot support an export strategy; the gas will all come from the U.S., and has to travel to the coast.
The money involved is astronomical. With innovations in drilling technology and the rise of fracking, the Permian Basin is the most prolific oil and gas field on the planet, and by itself would be the second-largest member of OPEC, behind only Saudi Arabia, in terms of production. Gas is becoming a much higher percentage of overall production from the basin, as fracking techniques pull out more previously locked resources. So the Permian, which has seen a flurry of consolidation deals worth tens of billions of dollars lately to increase profitability, is increasingly a gas patch, which adds to the urgency of finding a way to move that gas efficiently to Asia.
There is some existing pipeline capacity, but the Saguaro Connector would enable producers to feed all the planned export terminals on Mexico’s west coast. “It’s an essential artery to move U.S. gas in the Permian Basin to Asian markets,” said Slocum.
Last November, the State Department approved the Saguaro Connector, arguing dubiously that exporting the gas would reduce venting and flaring in the Permian Basin and thus lower greenhouse gas emissions. (The emissions released in China are apparently immaterial.) Public Citizen asked FERC for a lifecycle greenhouse gas emission analysis of the pipeline, but FERC responded that this would be outside their scope of authority. ONEOK, the company building the pipeline, agreed, saying that FERC could only do an environmental analysis of the tiny area in which the pipeline crosses the U.S.-Mexico border.
On Thursday, FERC made that interpretation official and approved the pipeline. Clements, the climate hawk member of FERC who is stepping down, dissented from the ruling. Public Citizen, which has intervened to oppose the project, plans to ask for a rehearing.
Mariam Zuhaib/AP Photo
Sen. John Barrasso (R-WY) speaks during a news conference on the administration’s pause on LNG exports, February 8, 2024, on Capitol Hill in Washington.
YOU WOULD THINK THAT BUILDING LNG export terminals in Mexico would get around more stringent U.S. regulatory guidelines, and that’s true in part. However, DOE, which regulates the export of the commodity gas (FERC regulates the physical facilities), ruled years ago that terminals sending U.S. exports abroad through Mexico would be subject to regulatory procedures as if they were U.S. terminals. No applicant challenged that premise, probably because it didn’t seem relevant. “Before January 26, getting DOE authorization was the easiest gig in town. They never said no,” Slocum said.
But on January 26, DOE announced the pause on new permits for 17 pending facilities. The re-evaluation, which takes into account the domestic natural gas market, global energy security, and environmental justice, is likely to take the rest of this year, if not beyond.
Thus far, only two export facilities in Mexico have been approved, both on the same day in December 2022, right before Sen. Ted Cruz (R-TX) released his holds on a slew of DOE officials. One of these, Energía Costa Azul, being built by California-based Sempra Energy, is under construction, but it’s a relatively small player. The other terminal has been unable to garner any long-term contracts. Current gas pipelines from the U.S. to Mexico are underutilized, because the export infrastructure has yet to be fully built out.
A third terminal, Mexico Pacific, received partial authorization, but was seeking a permit to expand that capacity so it can export a bigger volume and make the project economically viable. The Saguaro Connector is intended to initially feed the Mexico Pacific terminal, which is projected to be the biggest in Mexico.
Public Citizen had been fighting Mexico Pacific’s permit because, among other reasons, the government would have based its determination on whether the project was in the public interest on an “outdated and discredited” 2018 study on the macroeconomics of LNG exports. That’s the study that the Biden administration said it would re-evaluate when it instituted the pause. Advocates were increasingly challenging the 2018 study, including in court, and had a reasonable chance of overturning it if the administration did not pull back.
This means that Mexico Pacific’s permit is being held up by the pause. The terminal is fully subscribed with purchasers to buy its gas, but it currently does not have secured financing to build its facility, and the pause has added to the uncertainty. All of the potential investors in the facility, and in all Mexican LNG terminals, come from the U.S.
Under the terms of the original DOE authorization, Mexico Pacific must start exporting by December 2025. That timeline is extremely tight, given the lack of a firm deadline for the administration’s re-evaluation. Mexico Pacific could get an extension beyond 2025, but only if they secure the financing, and without a timeline to a permit, that is a remote option.
As a report from Ross and Javier Garcia of Climate News explains, last December, a ONEOK executive said publicly that the company would not build the Connector “if we think we are in a situation where we [have] a pipe to nowhere.” The pause really bottles up the opportunity to move gas from the Permian Basin to Mexico Pacific and elsewhere.
“With the pause, the pipeline goes to a bunch of projects whose future is very questionable all of a sudden,” Ross said. “If I were an investor, I would be very nervous about the future of these projects.” Ross expressed surprise that FERC nevertheless approved the pipeline, since one of the factors for permitting is “commercial necessity,” and even ONEOK is questioning that at this point.
THE ADVOCACY FOR THE PIPELINE, then, can be seen as a way to squeeze DOE on its decision-making process. After all, the pipeline is now approved, and the terminals needed to export the gas only need a permit to finalize investment decisions and get the extremely lucrative operation moving. DOE now finds itself on the opposite side of a powerful industry hungry to kick-start a critical business line. “The Saguaro Connector is a battering ram, to force open massive amounts of LNG by building the infrastructure for it,” Ross said.
The fact that FERC is likely to continue greenlighting export facilities and related infrastructure adds to the squeeze. “[The oil and gas industry] will use any leverage they possibly can to pressure the administration on this pause,” Slocum said.
Lots of ink has been spilled about whether natural gas is a bridge fuel to a renewable future that reduces emissions from coal and the other fossil energy sources that it replaces, or whether it’s a dangerous form of energy itself that releases powerful greenhouse gases like methane. How you think about LNG depends on the time horizon you look at. If you believe we’re a long way from carbon-free energy, maybe LNG can serve as that bridge. But if you think that energy infrastructure, once built, will stay in operation, then you have to think about LNG’s impact not now, but decades into the future.
The industry certainly talks about supply creating its own demand where LNG is concerned. “We assume there’s this set amount of demand for fossil fuels and that supply will slot into place,” said Ross. “It’s a mindset that reduces global fossil fuel demand to a game of Tetris. That’s not a good way to look at 40-year investments of LNG infrastructure that must operate for decades to recover costs.”
