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US ELECTIONS: Biden vs. Trump adds to LNG market calculations heading into 2021

Highlights

Tariffs, permitting, methane standards in focus

Vote could impact trade flows, commercial deals

Houston — Note: This is part of a series about the impact of the US elections on key energy commodities. Similar deep dives into natural gas, energy transition and Mexican energy sectors will follow over the next several weeks.

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Democratic presidential nominee Joe Biden could end the tit-for-tat tariffs between Washington and Beijing that have restrained US LNG exports to China and made new commercial development more challenging. Alternatively, President Donald Trump could make it easier to drill for the shale gas that feeds terminals and further speed up project permitting.

Whichever candidate wins the Nov. 3 election, the impact on the LNG industry will be felt 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," said Faisel Khan, chief financial officer of the LNG unit of San Diego-based Sempra Energy, in response to a question at a Gastech conference in September. "How will carbon play a part in the regulatory bodies across the US? 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?"

As president, Trump took a special interest in the exports of LNG, which were described by his administration as "molecules of US freedom" critical to the agenda of American 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 make final investment decisions (FID) amid uncertainty about future prices and demand, however. The projects face additional uncertainty around the US-China tariff disputes that started in 2018 and escalated in 2019, before easing slightly in January after an initial pact was signed between the two countries.

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Trade policy

Going into the election, none of that will be as consequential for the US LNG industry as what the outcome of the race will mean for trade policy.

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

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 US, which prior to the coronavirus pandemic was on its way to potentially becoming the world's biggest LNG exporter within the same time frame.

The tariffs, even with exemptions that the Chinese government offered some of its importers on a limited basis, have disrupted those dynamics.

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

Trade policy took a severe toll on negotiations over long-term supply deals even before the coronavirus pummeled demand and forced most developers of US projects to delay FID targets. In nearly four years of the Trump presidency, only one of the new LNG projects authorized by his administration has advanced to construction – Venture Global's Calcasieu Pass facility in Louisiana.

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

The trade tensions also prompted a 13-month halt in US LNG deliveries to China, both spot and under contract. Deliveries resumed in April, after the exemptions China granted some of its importers. But purchases have fallen short of targets under the 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 who had pushed for a total fracking ban.

US LNG projects may also benefit from stronger federal methane-reduction standards under a Biden administration because that could help exports 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 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 place greater scrutiny on the significance of greenhouse gas emissions in making public interest determinations. But that would not affect the roughly 25 Bcf/d worth of LNG facilities that already have the necessary federal permits but have yet to advance to construction, according to Columbia's Blanton.

Analysts consider it unlikely that a Biden administration would seek 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 US, would likely remain, though that would present less of a problem for LNG facilities, which are concentrated mostly along the Gulf Coast, industry observers said.