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US withdrawal from trade deal cuts off avenue for quick approval of LNG exports

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US withdrawal from trade deal cuts off avenue for quick approval of LNG exports

President Donald Trump's executive order withdrawing the U.S. from the Trans-Pacific Partnership means LNG export hopefuls will remain without an expedited approval process for exports to countries like Japan, a key outlet for the fuel in a glutted global market.

Trump on Jan. 23 signed an executive order pulling out of the agreement, which was backed by President Barack Obama but never ratified by the Republican-controlled Congress. Trump on the campaign trail had slammed the 12-nation Trans-Pacific Partnership, or TPP, and other multilateral trade deals, which he said hurt American workers. White House spokesman Sean Spicer said that pulling out of the TPP was symbolic of "a new era of trade policy" and that Trump will consider bilateral trade deals moving forward. He added that Trump will also look to renegotiate the North American Free Trade Agreement with Mexico and Canada.

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President Donald Trump signs an executive order to withdraw the U.S. from the Trans-Pacific Partnership on Jan. 23 in the Oval Office.

AP Photo/Evan Vucci

The TPP would have made LNG export approvals to several Pacific Rim countries nearly automatic by classifying those markets as free-trade-agreement countries. The U.S. Department of Energy, which is charged with approving LNG exports, typically issues its authorization to export to FTA countries relatively soon after developers' application, while the non-FTA order can come months after FERC's order allowing developers to construct and operate the liquefaction and export terminal.

That lag in non-FTA export approvals can hurt developers' negotiations with overseas buyers, said Ernie Megginson, president of the energy projects consulting firm Megginson & Associates Inc. He gave the example of Magnolia LNG, which was approved by FERC in April 2016 but was not given authorization until November of that year to export to non-FTA countries. "That seven months is wasted time," Megginson said. "That's built in the system now, so the loss of TPP doesn't mean that it's going to get longer; it just means that it's not going to get shorter." Megginson was formerly a vice president at Magnolia LNG.

While the TPP would have accelerated export approvals to certain countries, a quicker timeline for the DOE to expedite approvals for non-FTA exports would have more of an impact on U.S. LNG developers, Megginson said. Sen. John Barrasso, R-Wyo., said during a confirmation hearing for former Texas Gov. Rick Perry, whom Trump tapped to head the DOE, that legislation mandating a set timeline for LNG export approvals will be reintroduced in the new Congress.

Developers of U.S. LNG export projects were not counting on a deal like the TPP to make export authorizations quicker, said Fred Beach, assistant director for policy studies at the University of Texas' Energy Institute. "These are multibillion-dollar decisions that go out 10 to 20 years. ... You don't make that decision based on 'Will TPP get ratified?'" he said. "These are huge risks for any company, no matter how big they are. They do some pretty due diligence."

The high cost of these projects means developers must have contracts to sell their LNG before they get financing for a project, said Elizabeth Gore, a policy director for Brownstein Hyatt Farber Schreck LLP. "Those contracts were signed with no TPP in place, and so the cancellation does not disrupt those contracts or those projects." Instead, she said, the impact will be on future contracts and projects. "It has the impact of limiting potential future growth in LNG exports, such as new LNG export contracts that now will not be signed and new projects or project expansions that are more difficult to finance."

Maya van Rossum, head of the Delaware Riverkeeper Network, said withdrawal from the TPP is a win for environmental groups, because the deal would have increased fracking to domestically produce natural gas. "You are pumping up the pressure for fracking and for fracked gas and for the export of that gas in order to service other nations at the expense of U.S. communities, at the expense of U.S. profits and at the expense of U.S. clean energy jobs," she said. "I don't think that President Trump made that decision because he cared about the environmental implications, but the fact that the environment received additional protection as a result ... well, I'll take that."

The countries involved in the TPP are the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.