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The US liquefied natural gas industry faces mounting challenges as legal clashes with activists and contractors combine with a federal permitting freeze to slow the expansion of the world’s biggest exporter.
Two multibillion-dollar terminals under construction on the Texas Gulf Coast backed by supermajors ExxonMobil and TotalEnergies suffered fresh setbacks this month, which are expected to lead to delays.
This has added to uncertainty over future supply growth created by the Joe Biden administration’s pause on new export permits and underlined the complexity of getting LNG megaprojects off the ground.
“LNG plants are energy infrastructure — and building energy infrastructure in America today is hard,” said Kevin Book, managing director of ClearView Energy Partners.
The US LNG industry has boomed in recent years amid surging demand from abroad, especially as Europe seeks to wean itself off reliance on Russian gas in the wake of Moscow’s full-scale invasion of Ukraine.
The US overtook Australia in 2023 to become the world’s biggest exporter, shipping 11.9bn cubic feet a day of LNG — enough to satisfy the combined gas needs of Germany and France — and industry has ambitious plans to double exports by the end of the decade.
But despite the thirst for US molecules, the challenges in bringing new terminals online costing tens of billions of dollars are increasing.
ExxonMobil and QatarEnergy this month pushed back the start of their $11bn Golden Pass project in Texas by six months to the end of next year after a clash with lead contractor Zachry Holdings over ballooning costs at the project. Zachry filed for bankruptcy protection in May.
A settlement reached with Zachry in recent weeks has allowed the owners to bring in a new lead contractor and push ahead with construction. Exxon finance chief Kathy Mikells welcomed the settlement, telling the Financial Times it would allow the company to “move forward to complete the project”.
NextDecade’s $18bn Rio Grande project was also dealt a blow this month after a court threw out a key regulatory approval following a legal challenge by environmental and community groups.
The company — which is 17 per cent owned by France’s TotalEnergies — vowed to take “all available legal and regulatory actions” to ensure the first phase of the project, due online in 2027, would be completed on time and that its latter stages would not be “unduly delayed”. NextDecade shares have slid about 40 per cent since the ruling.
“This decision has far-reaching implications beyond this project,” Matt Schatzman, NextDecade’s chief executive, said in a statement to the FT.
“If the ruling stands, the precedent that would be set by the court’s action has the potential to impact the viability of all federally permitted infrastructure projects because it will be difficult for these projects to attract capital investments until they receive final unappealable permits.”
When fully operational, the combined export capacity of the Golden Pass and Rio Grande facilities is set to reach as much as 5.9bn cubic feet per day, almost half of the volume shipped by the US last year.
Delays in bringing US projects online threaten to further squeeze an already tight market and push up prices. The Golden Pass delay will remove 2.3mn tonnes of supply from the market next year and 5.2mn in 2026, according to Wood Mackenzie.
The recent setbacks add to the travails of an industry whose rapid expansion since its establishment in 2016 hit a roadblock this year after the Biden administration in January halted new export permits for terminals as the Department of Energy carries out a review of the benefits.
There has been a marked slowdown in developments being greenlit since. Last year, three projects with a record combined capacity 37.5mn tonnes a year reached the crucial final investment decision stage, according to Wood Mackenzie. This year no projects have done so.
Though the Biden moratorium was blocked by a federal judge last month, no new permits have been issued since and industry players do not expect any change before the November presidential election.
“Developers and LNG buyers are waiting from clarification from courts and the US election to remove uncertainty,” said Mark Bononi, an analyst at Wood Mackenzie.
The energy department review is expected to be completed by March 2025. Republican presidential candidate Donald Trump has said he would begin issuing permits immediately if reelected. Analysts expect Democratic candidate Kamala Harris would also quickly end the freeze.
But Harris will face strong pushback from environmental groups and local activists over any move to speed up permitting for an industry they argue has destroyed coastal ecosystems and harmed local communities.
The Carrizo/Comecrudo tribe of Texas, which was among the plaintiffs in the case against NextDecade, said the project had ridden roughshod over sacred lands and vowed to continue to staunchly oppose it. “We will fight until our last penny,” Juan Mancias, tribal chair, told the FT.
The uncertainty in the US has caused some buyers to look abroad in a move industry players warn could derail some projects completely as anchor customers seek out contracts with clearer timeframes.
“It’s not good for these projects to be in limbo for a long time,” said Jason Bennett at law firm Baker Botts. “Buyers are always going to purchase LNG and are looking to buy in a particular time period.”