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US election to shape LNG exporters' options, especially Chinese market access

As part of ongoing U.S. elections coverage, this is the second of a four-part feature series taking a deep dive into key energy segments: oil, LNG, natural gas and the energy transition.

Democratic presidential nominee Joe Biden could end the tit-for-tat tariffs between Washington and Beijing that have restrained U.S. LNG exports to China and made new commercial development more challenging.

Alternatively, President Donald Trump could make it easier to drill for shale gas that feeds terminals and further speed up project permitting.

Whichever candidate wins the Nov. 3 election, the LNG industry will feel the impact heading into 2021 — a pivotal year in which new capacity may be sanctioned or fall off the board altogether. Countries' differing climate goals also will be a factor.

"I'd say as we look at regulation, we're clearly watching what's going to happen here in this next election cycle," Faisel Khan, CFO of the LNG unit of San Diego-based Sempra Energy, said at a Gastech conference in September. "How will carbon play a part in the regulatory bodies across the U.S.? We clearly see it here on the West Coast, and the question is: Will that play a part across the entire country? How will that interact with the rest of the world?"

READ MORE: Sign up for our weekly election newsletter here, and read our latest coverage here.

As president, Trump took a special interest in the exports of liquefied natural gas that were described by his administration as "molecules of U.S. freedom" critical to the agenda of U.S. energy dominance.

The Trump administration eased bottlenecks in the federal permitting process for the multibillion-dollar export facilities, promoted the fuel to foreign heads of state and approved more than a dozen proposed LNG projects. Most of the permitted projects have yet to take final investment decisions, or FIDs, amid uncertainty about future prices and demand, however. The projects face additional uncertainty around the U.S.-China tariff activity that started in 2018 and escalated in 2019, before easing slightly in January after an initial pact was signed between the two countries.

Trade policy

None of the Trump administration's permitting or promotion to date will be as consequential for the U.S. LNG industry as the election outcome's implications for trade policy, according to industry experts.

"We have had significantly less FID activity than you would have expected coming from the U.S.," Erin Blanton, a senior research scholar focused on natural gas at Columbia University's Center on Global Energy Policy, said in an interview.

The coronavirus pandemic pummeled demand and in recent months forced most developers of U.S. projects to delay targets for final investment decisions. But U.S.-imposed tariffs on China had already taken a severe toll on long-term supply deal negotiations before the pandemic took hold — even with exemptions that the Chinese government offered some of its importers on a limited basis.

By the end of the decade, China is expected to become the world's biggest importer of LNG, making it a critical market for liquefaction terminals in the U.S. Prior to the pandemic, the U.S. was on its way to potentially becoming the world's biggest LNG exporter within the same time frame.

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Biden said as recently as August that, if elected, he would remove the tariffs on Chinese goods. That, in turn, could incentivize China to lifts its tariffs on imports of U.S. goods, including LNG. Biden criticized the current White House for going after the economic rival "in the wrong way" and said the U.S. "poked our finger in the eye of all of our allies out there" by hitting trade partners with tariffs.

Over the four years of Trump's presidency, only one of the new LNG projects authorized by his administration has advanced to construction — Venture Global LNG's Calcasieu Pass facility in Louisiana.

To date, only Cheniere Energy Inc., the biggest U.S. LNG exporter, holds a long-term supply deal with a Chinese counterparty.

The trade tensions also prompted a 13-month halt in U.S. LNG deliveries to China, both spot and under contract. Deliveries resumed in April, in light the exemptions China granted some of its importers. But purchases have fallen short of targets under a so-called Phase 1 trade deal between the two counties.

Analysts generally do not expect any major warming of trade ties with China under a Biden administration, but a Biden victory could lessen the risk of worsening relations and deliveries to China becoming uneconomic again.

Climate policy

Biden's $2 trillion climate and energy plan does not mention LNG exports and focuses largely on investments in clean energy and infrastructure. Still, he has not taken as hard a stance on oil and gas as many of his Democratic primary opponents, some of whom had pushed for a total fracking ban.

U.S. LNG projects could benefit from stronger federal methane reduction standards under a Biden administration because that could help exporters meet carbon intensity standards that are coming into effect in Europe.

On the flip side, Trump has promised to maintain his deregulation push, which could benefit gas drilling interests and boost cheap supplies that feed liquefaction facilities.

The industry, meanwhile, is taking a wait-and-see approach.

"Despite the elevated levels of uncertainty regarding natural gas investment, and the commissioning delays that the pandemic has caused, gas market fundamentals remain strong," Joseph McMonigle, secretary general of the International Energy Forum, which facilitates dialogue between energy market participants, said at Gastech.

Project permitting

Federal permitting of gas infrastructure — including LNG facilities — could weigh greenhouse gas emissions more heavily in making public interest determinations under a Biden presidency. That kind of shift would not, however, affect the roughly 25 Bcf/d of prospective LNG facilities that already have their federal permits but have yet to start construction, according to Columbia University's Blanton.

Analysts consider it unlikely that a Biden administration would try to alter existing LNG export licenses or otherwise move to throttle back shipments of the fuel.

Existing obstacles to building major interstate pipeline infrastructure, especially in the eastern U.S., would likely remain under either administration, according to industry experts. But regulatory hurdles and delays are less likely to impact LNG facilities, which are concentrated mostly along the Gulf Coast.

Harry 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.