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Biden climate order could shift money away from overseas gas, LNG projects

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Biden climate order could shift money away from overseas gas, LNG projects

Efforts in Europe to curtail financing of international fossil fuel infrastructure development received a substantial boost from the Biden administration's broad climate executive order rolled out Jan. 27.

A provision in the order directed U.S. treasury and energy secretaries to work with two key financing entities — the Export-Import Bank of the United States and the U.S. International Development Finance Corporation — to identify steps through which the U.S. can "promote ending international financing of carbon-intensive fossil fuel-based energy" while advancing sustainable development.

The wording does not specify the resources to be targeted, but energy market observers, oil and gas industry leaders and environmental groups all suggested the order could put international natural gas project investments at risk. If gas projects are targeted, the order could squelch nascent efforts under the Trump administration, and encouraged by LNG developers, to help spur financing of gas infrastructure and promote gas market development overseas.

The order also called for the U.S. to develop a climate finance plan, which would make use of multilateral and bilateral institutions to help flow capital "toward climate-aligned investments and away from high-carbon investments." The treasury secretary and secretary of state are tasked with submitting a plan to the president within 90 days.

Early Trump efforts

U.S. LNG developers have encouraged steps such as Ex-Im credit support for potential buyers of long-term LNG contracts. During the Trump administration, there was also discussion of using the newly reconstituted U.S. International Development Finance Corp., to take an equity position in LNG and other gas projects. Former Secretary of State Mike Pompeo in 2018 announced the "Asia-EDGE" initiative, which included a $50 million investment to help Indo-Pacific partners import, store and develop energy sources.

While the Biden administration's stance on natural gas is still unfolding, a Jan. 27 comment by President Joe Biden's international envoy for climate change, John Kerry, was seen as cool to the resource by some market observers. Speaking at a virtual World Economic Forum event, Kerry warned that a large build-out of gas infrastructure now risks being "stuck with stranded assets in 10 or 20 or 30 years."

The executive order statement drew plaudits from groups seeking to stamp out fossil fuel financing, but concern from the American Petroleum Institute and LNG trade groups.

"When the Export-Import Bank helps build out LNG facilities in countries that currently get their power from coal, that is environmental progress," said API President and CEO Mike Sommers, speaking at a U.S. Energy Association forum. "India and China still get most of their energy from coal and it's growing. Shouldn't it be the top priority of the United States to help them cut their emissions profile through LNG?"

The environmental group Oil Change International welcomed the move as adding to "snowballing momentum" against fossil fuel financing, given recent commitments from the United Kingdom and European Union to end their international public finance for fossil fuels. "If the U.S., EU, and U.K. join forces to end the tens of billions of dollars per year in public finance for fossil fuels, they can work together to make this a reality by the U.N. climate summit in Glasgow this November," the group said in a statement.

A revised U.S. stance could also influence important multilateral institutions such as the World Bank, several observers said. Still, the executive order is only the beginning of a process among the government entities.

Scope of the order

Joe Thwaites, an associate in the Sustainable Finance Center at World Resources Institute, said "while there is ambiguity in the executive order, the direction of travel is definitely toward phasing out overseas gas finance" given Biden campaign promises and administration statements over the last week.

"I think ramping up overseas gas finance at this moment would be totally inconsistent with eliminating fossil fuel subsidies by the end of the term," a Biden campaign goal, Thwaites said.

Nikos Tsafos, senior fellow at the Center for Strategic and International Studies, agreed that the goal appears to be stopping fossil fuel financing overseas.

"The question is whether the ban will be broad or narrow, and whether it will contain exceptions," Tsafos said. "For instance, would the prohibition include oilfield services? Could a gas project get financed if it clearly displaces coal in the target country? Is there a national security exemption for projects that counter Russia or China? Is there space for gas projects that could, one day, capture their emissions or be converted into hydrogen?"

The Ex-Im Bank approved $13.6 billion to support export transactions in fiscal years 2019 and 2020, with a third going to the Mozambique LNG project developed by Total SE. The DFC has backed gas projects in places such as Egypt and South Africa. These organizations have also discussed supporting Vietnam in its pursuit of developing LNG infrastructure.

Fred Hutchison of LNG Allies said, "I expect our trading partners from developed Asia, from developing Asia, from Europe [and] especially Eastern Europe — I expect them all to raise with this administration the key role that gas plays for them, especially as part of practical solutions to deal immediately with climate."

Maya Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.