Trading and Risk

The LNG project pause: Calculated risk or tactical blunder? 

byEnverus

Amid significant volatility in global energy markets, U.S. President Joe Biden’s decision to temporarily halt approvals for pending liquefied natural gas (LNG) projects seems to defy conventional trading wisdom. This audacious move has given rise to a variety of viewpoints and theories across the sector.

The spot market pause: A result of Biden’s LNG Project approvals freeze during DOE review 

In a nod to his campaign promise to tackle climate change, Biden revealed a provisional pause on approvals for proposed LNG projects. This decision stems from the Department of Energy’s (DOE) strategy to re-evaluate the wider impacts of exporting LNG. This review will focus on the key areas of:  

  1. Domestic energy expenditure 
  1. U.S. energy security 
  1. Accompanying environmental effects 

The press release argues that the environmental assessment, crucial for giving the go-ahead, is out-of-date as it doesn’t shed light on greenhouse gas emissions comprehensively and doesn’t consider potential hikes in domestic energy prices. 

Despite this interim pause, the U.S. continues to maintain its commitment to its allies, reassuring a stable supply of LNG in the near to medium term. A European Commission spokesperson indicated that this move bears no risk to EU’s energy security in the short- to medium-term. Only a handful of DOE-approved projects are impacted, notably, Venture Global LNG’s Calcasieu Pass 2 project is among those, waiting for augmented scrutiny and FERC’s consent before making an appearance on DOE’s desk.

Amid pause announcement, EIR’s outlook on LNG supply & demand remains firm 

As per the projections of the Macro Fundamentals team at Enverus Intelligence® Research (EIR)* in November 2023, gas prices are forecasted to rise to $5.00/MMBtu by 2025-26 due to burgeoning gas demand growth. This growth is vital not only to appease the current demand but also to meet the need of the new LNG export projects. Even considering the provisional halt on forthcoming LNG projects, they predict this outcome is plausible. 

Nov. 2nd/2023

To know more about the projected pricing landscape for North American natural gas, tune in to Al Salazar’s webinar, “Natural Gas Price Pathways to 2030.” 

Within the Enverus “Energy in Focus” E-Book, the team further speculates that the North American gas market of 2024 will have similarities to its 2023 state – characterized by sturdy supply growth and optimal levels of gas storage. They believe these elements will lead to a price hike in 2025, especially given the forthcoming LNG facilities. Despite a postponement in the North American LNG expansion, they predict an additional daily capacity of about 10 billion cubic feet could be functional within three years. This could turn 2024 into an ideal time for acquiring gas-weighted E&P assets. 

 
“In summary, the delay caused by the Biden administration has minimal impact on our base case LNG forecast, as it affects pre-FID projects that haven’t yet received their DOE license. Considering global gas demand, we expect there is ample demand for one or two more projects to receive FID in the U.S., while exceeding this number would necessitate offsetting LNG export capacity elsewhere.”  

– Josephine Mills, Senior Associate, Enverus Intelligence® Research “Feb. 1st/2024” 

Projects like CP2 have gathered international backing, as its offtakers urged the U.S. government to give it the green light, emphasizing its significance for European energy security. Of the proposed U.S. export projects, contracts for approximately 5 billion cubic feet per day of offtake have been signed. 

Announcing a pause, yet EIR’s projections of LNG supply & demand hold steady 

In conclusion, while the Biden administration’s temporary halt may seem a detour, opportunity often lies in periods of uncertainty, and this unique situation is no different. As traders are continually seeking agility and precision in a world where market changes occur in fractions of a second, Enverus Trading and Risk Solutions emerges as an indispensable ally. By combining accurate, real-time commodity price data sources with automation, presenting a comprehensive trading and risk data management, and price forward curve management solution, you can tailor it to match your specific market views and act promptly on fluctuating market conditions.

Authors

josephine-mills
Josephine Mills
Senior Associate at Enverus Intelligence® | Research (EIR)

Josephine is a senior associate on the Macro Intelligence team at Enverus. She joined the team in 2022 after graduating from chemical engineering at Queen’s University. Based in Calgary, Josephine researches oil and natural gas balances.

Chris leads the development and communication of the value these products provide various industries, including oilfield services, investment funds, wealth management departments, banks, E&P oil and gas departments, and midstream operators. Chris helps provide customers across the energy ecosystem with the intelligent connections and actionable insights that allow them to uncover new opportunities and thrive. 

* About Enverus Intelligence® 
Enverus Intelligence Research, Inc. is a subsidiary of Enverus and publishes energy-sector research that focuses on the oil and natural gas industries and broader energy topics including publicly traded and privately held oil, gas, midstream and other energy industry companies, basin studies (including characteristics, activity, infrastructure, etc.), commodity pricing forecasts, global macroeconomics and geopolitical matters. Enverus Intelligence Research, Inc. is registered with the U.S. Securities and Exchange Commission as a foreign investment adviser. Click here to learn more. 

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