Shealah Craighead/White House
President Donald J. Trump participates in a walking tour of Cameron LNG Export Terminal, May 14, 2019, in Hackberry, Louisiana.
As the U.S. attempts to bring down the soaring price of energy, financing from a New Deal–era agency could be used to ramp up domestic gas production. It is planning those controversial investments with almost no opportunity for public review.
The U.S. Export-Import Bank (Exim), a government agency that helps finance sales for American exporters, last year provided its first loan guarantee for the domestic liquefied natural gas (LNG) sector. It went to Greensill Capital, a Softbank-backed financier that also lent money to West Virginia Gov. Jim Justice’s coal-mining empire, and it was aimed at channeling $50 million in supply chain financing to a natural gas facility in Texas. Two months after Exim provided the financing, the company imploded.
Now, under pressure from LNG interests, Exim may double down on its investment in fracked gas through a domestic financing program President Biden has created to strengthen supply chains.
Exim was long criticized on a bipartisan basis as either picking winners or providing corporate welfare. While it has historically backed large and politically powerful multinationals, Biden has made the case for productive federal investment and has tasked the bank with backing neglected sectors like semiconductors, renewables, and critical minerals. The plan is to help overseas sales of American products—for instance, supporting the export of mining equipment. There is emphasis on loans for small businesses, which Exim, along with similar agencies like the U.S. Development Finance Corporation (DFC), could assist in finding a market for their products abroad.
Yet while the move reflects growing public support for industrial policy, the bank has not made its plans available for scrutiny by taxpayers. Two days before Christmas, Exim posted a notice in the Federal Register outlining “potential parameters” for its new domestic program and inviting feedback. Critics, including Senate Banking Committee ranking member Pat Toomey (R-PA), say the notice is vague and has not provided adequate opportunity for public notice and comment. The framework is highly technical and does not include any mention of potential recipients of the lending.
Exim’s board votes on that domestic program today. Ahead of the vote, the LNG industry has lobbied the bank to use the program to support more domestic fracking. LNG Allies, a business group, sent a letter following the invasion of Ukraine to the bank’s president, citing 14 LNG projects ready for investment.
The bank declined to rule out scaled-up investments in gas in an interview with the Prospect.
“We can’t discriminate incoming applications by sector,” an Exim spokesperson said, adding that all applications will go through due diligence vetting including environmental and social reviews, and that LNG is not one of the incentivized sectors, such as critical minerals and renewables, that the bank has been asked to prioritize.
Demand for LNG was not as hot when Biden’s executive order was issued. But Exim’s main criteria for lending include a lack of private financing and high export demand. It will be tough to find a sector better positioned to benefit from those terms than energy.
EXIM SPECIFIES THAT its loans should not compete with private capital, and should instead be made in sectors where private finance has been reluctant to enter. Capital discipline has held down Wall Street investment in new oil production for months, prompting Biden officials and even oil industry executives to plead with investors for fresh infusions of capital.
LNG Allies, the industry group, argues that U.S. gas producers are at a “significant disadvantage” compared with energy companies in other countries, and need subsidies from Exim to help attract private loans.
Exim earlier this week denied a request for expedited review for a FOIA request filed by The American Prospect and Friends of the Earth, requesting communications the bank has had since January with potentially eligible LNG projects, such as the Lake Charles and West Delta terminals in Louisiana.
Financing in the new domestic program would not necessarily flow to LNG. The bank could opt to pour more money into renewable energy, in addition to manufacturing and mining. In the past, it has backed First Solar, the largest solar manufacturer in the United States. According to Exim’s estimates, the spokesperson said, there are around half a dozen other U.S. solar producers that could potentially use the new domestic financing tool.
But available signs on the opaque program signal greater support for the bank’s export financing cash to flow into gas production. The Biden administration has embraced gas since Russia’s invasion of Ukraine, saying short-term energy needs take priority over climate goals. Luke Lindberg, chief strategy officer at Exim during the previous administration, wrote an op-ed urging the bank to invest in infrastructure for transporting LNG to Europe.
“Private banks are not apt to loan a lot of dollars into a war-torn area at this moment in time. So, you’re trying to find those moments where private lending is not available, but Exim could provide guarantees,” Lindberg said in an interview with the Prospect.
Asked about prioritizing green production, Lindberg said, “That’s not the role the Export-Import Bank is designed to play. We’re designed to support American jobs.”
LONG NICKNAMED “BOEING’S BANK,” Exim has typically struck financing agreements directly with overseas governments, persuading foreign militaries to buy Boeing jets or providing loan guarantees for Caterpillar equipment. They vied with export credit agencies in countries like France which also try to sweeten deals for their domestic companies.
Perceived favoritism of big companies—at one point, more than half of Exim loans went to financing Boeing’s aircraft sales—has drawn past criticism from both the right and left. The bank was shut down for years before being reauthorized in the Trump era. With growing support for U.S. industrial policy, however, there is now bipartisan backing for Exim, and a new emphasis on financing for critical sectors in America.
“We’re not financing the sale of a U.S. good to a foreign buyer, we’re financing the production of a U.S.-made good that would ultimately be exported,” the Exim spokesperson told the Prospect.
That may sound like a distinction without a difference. Exim’s new domestic financing mandate does not come with its own budget, so it will be drawn from the $95 billion in lending capacity currently available, the spokesperson said. And while domestic financing may seem more suited to a political environment focused on geopolitical competition and industrial policy, it is not obvious that American producers will prefer direct cash infusions rather than having Exim wrangle on their behalf with foreign buyers and international rivals.
BUT DIRECTLY FUNDING domestic energy projects may be more than a symbolic shift. It could help Exim sidestep recent pledges that have become politically unpalatable, given high global demand for natural gas.
The Biden administration committed at last year’s U.N. climate conference to end public financing for unabated fossil fuel energy overseas by the end of 2022. That means new financing for coal, oil, and gas projects that lack technology to capture carbon emissions would no longer be allowed to receive American support.
That could mean Exim reconsiders funding a petrochemical complex in Malaysia and an oil refinery in Indonesia, both of which are currently under review. Climate activists hope the U.S. will go further and use negotiators to push other OECD countries to wind down foreign investment in oil and gas.
Instead, the American export credit agency could keep in line with Biden’s climate pledge abroad, while undercutting it by ramping up a new stream of financing for fossil fuels at home.
Peer countries’ export arms have already set precedent, said Kate DeAngelis, a policy analyst on international financing at Friends of the Earth. Canada has expanded its export credit agency’s domestic mandate, with Export Development Canada channeling tens of billions in subsidies to Canada’s domestic oil and gas sector.
A further worry is that LNG investments made in the near future could become stranded assets during their multi-decade life cycle. When rosy projections about future revenues on oil and gas discoveries sour, local governments are often left in debt. That risk could be compounded in the coming years, if Europe follows through on its plans to import 50 billion cubic meters of LNG through 2030—and then turn around and pursue an aggressive campaign of demand destruction.
In that world, the global oil market could become a race to pump most cheaply, turning excess capacity into a financial liability. That’s on top of the political risk of the world’s largest oil producer continuing to ask allies to reduce their drilling.
“Exim shouldn’t really be going gung ho into new fossil fuel investments,” said Joe Thwaites, a sustainable finance associate at the World Resources Institute. “It’s going to hurt the U.S.’s international diplomacy if they’re seen to be lobbying other countries to transition, while domestically ramping up their fossil investments.”
