Why the US LNG export approvals pause is causing headaches in Southeast Asia

US LNG exports have been a growth story of the last decade, providing affordable, reliable, clean-burning natural gas to customers in Europe and Asia.  However, as ANGEA Senior Advisor Neil Theobald writes in the February edition of The Energy Diary, the recently announced pause in new project approvals is undermining confidence in the long-term reliability of US LNG supply.  

The LNG industry has expanded in waves as new sources of natural gas become accessible and economics support development.  The first wave was mainly from South-East Asia to Japan in the 1970s – Indonesia, Malaysia and Brunei.  Then came the Middle East and some African projects followed, by the bulk of Australian capacity from 2005.

These developments followed a common theme – natural gas that had limited local demand being liquefied and shipped long distances to market.

The US LNG industry is unusual.  Excluding exports from Alaska, the United States was expected to be an LNG importer until 2010.  There was much investment in import infrastructure, especially along the Gulf Coast and bitter debates around environmental and safety issues associated with imports.  I remember spending much time discussing the export of Australian LNG to the West Coast of North America, specifically northern Baja in Mexico.  Fortunately, none of those opportunities came to fruition.

Now the situation is reversed.  US LNG exports, initially from repurposed import terminals with added liquefaction facilities, are now the largest in the world just ahead of Australia and Qatar.  Russia is a distant fourth.  This dramatic change was due to the shale gas revolution which has had so many impacts in North America.  From being an energy importer, with all the associated security and cost issues, the US is now a major energy exporter.

The US LNG export industry has grown remarkably to become the biggest in the world.

Despite the ramp-up in LNG exports the price of natural gas in the US has remained low, improving competitiveness, and allowing the replacement of much coal-fired power generation with cleaner natural gas.  From 2000 to 2020, the share of US power generated from coal dropped from over 50 per cent to around 20 per cent.  At the same time, the natural gas share rose from 14 per cent to 39 per cent.  This substitution is responsible for a large part of US emissions reductions over that period.

This dramatic change has also cemented energy security in North America in a way that other regions can only dream of.  In Europe, the fragility of foreign energy supplies has once again been demonstrated recently.  Of course, this is nothing new and energy has often been used as a geopolitical weapon, although you could be forgiven for thinking the lessons were not there given the surprise expressed in the past couple of years.

Energy supplies in the Asian region have always been seen politically as well as economically with geography a big driver of this.  Asia is geographically and politically diverse and relatively poor in oil and gas.  Many of the major economies, such as Japan, Korea & Taiwan import most of their energy.  Regional energy networks, which are a large part of energy security, are physically difficult to construct.  The early LNG developments in South East Asia were spurred on by the 1973 oil shock, to diversify away from Middle Eastern oil for power generation.

Local development of natural gas has supported economic growth but many of these resources are now declining.  Asia also has many developing economies where raising the population out of energy poverty is still a work in progress.  In these circumstances, it’s not surprising that coal, which is abundant in parts of Asia, relatively cheap and has many suppliers, is the backbone of the power system.  On top of this, emissions targets now mean that further coal development will work against national greenhouse objectives.

So how does a policymaker in Southeast Asia deal with these competing demands?

Their economies need reasonably priced energy, their supply chains are vulnerable to political shocks and they are being asked to decarbonise economies that have only recently carbonised in the first place.

One of the policy alternatives is to replace coal-fired power with gas to reduce emissions, as the US has already done.  If the gas is affordable and from a reliable supplier this will mitigate energy security concerns and allow for continued economic growth.

Lead times on these sorts of policy choices run to decades, so there must be confidence that supply will be available in the very long term.  The most realistic source would be from the continued development of the US LNG industry.

This is why the recent pause in project approvals announced by the US administration is so serious.  US Government officials point out that much expansion capacity is either already under construction or approved and the pause will not affect these projects.

While this is true, the perspective in Asia is different.  A policymaker having to make multi-decade decisions about the future of their energy system, upon which their economic development and political stability will be based, will be reluctant to commit to natural gas and more likely to stay with an energy source that is cheap, well understood and available – coal.

This is the knock-on effect of a decision taken with little consideration for the impact outside of the US.  Hopefully, the review will be completed quickly and the US LNG industry allowed to go back to providing reliable, affordable natural gas in the long term to the developing economies of Asia.

Neil Theobald has more than 40 years’ experience in the oil and gas industry, including 17 years at Chevron, where he was Vice President, Global LNG, Gas Supply & Trading. He has been a Senior Advisor to ANGEA since 2021.

ANGEA is an industry association representing LNG and natural gas producers, energy buyers, suppliers and companies in APAC. Based in Singapore, it works in partnership with governments and societies across the region to deliver reliable and secure energy solutions that achieve national economic, energy security, social and environmental objectives and meet global climate goals.