US gas rescue plan for Europe threatens domestic pushback

Europe is desperate for new natural gas sources as the Kremlin squeezes deliveries from Russian fields. But a US promise to plug the supply gap is threatening a domestic backlash.

The US wholesale gas market is likely to average $9 a million British thermal units for the remainder of the year, the Energy Information Administration forecast on Wednesday. The price is a fraction of the gas price in Europe, giving traders huge financial incentives to send fleets of liquefied natural gas tankers overseas. The US recently eclipsed Australia and Qatar as the world’s largest LNG exporter.

But $9 is still triple the average US gas price of the past decade, and thus holds the potential to drive sharp increases in home heating and electricity prices at a time when inflation is close to 40-year highs.

In July, state governors in the north-eastern New England region warned the White House of a potential jump in gas prices in the winter. They alluded to the US’s pledge to help Europe reduce reliance on Russian gas, made weeks after Vladimir Putin’s invasion of Ukraine.

“We appreciate that the [Joe] Biden administration has been working with European allies to expand fuel exports to Europe. A similar effort should be made for New England,” the group of governors wrote to energy secretary Jennifer Granholm, in a letter seen by the Financial Times.

The governors of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont asked the administration to help secure domestic LNG supplies for their region from the Gulf of Mexico coast, a move that could divert US exports away from global markets.

High prices “will have significant implications for our region’s electric and natural gas customers and raises reliability concerns if the region suffers a severe winter”, the governors told Granholm.

New England typically imports LNG from abroad through a terminal near Boston during the coldest months. To the frustration of US gas producers, some states in the region have fought construction of pipelines that would run from the nearby Marcellus shale, one of the world’s largest gasfields.

The governors asked the administration to ease restrictions under the Jones Act, a law that requires vessels that are US-flagged, built and crewed for shipments between domestic ports.

Granholm replied to the governors in a letter last month, saying that the administration was “prepared to use all the tools in our toolkit” to address supply disruptions and high prices. She said the administration would quickly review any requests for exemptions from the Jones Act, but it could not issue “blanket waivers”.

Since the first gas exports left the Gulf coast in 2016, LNG shipments have grown to account for about 12 per cent of total US production. More than 70 per cent of those cargoes have flowed to Europe this year. The continent’s need for it was accentuated this week, when Russia said it would keep the Nord Stream 1 pipeline to Europe shut until western sanctions on Moscow are lifted.

Business groups such the US Chamber of Commerce and National Association of Manufacturers have largely backed further gas exports. Yet others have raised concerns. In August the Industrial Energy Consumers of America, a manufacturing group, said in a regulatory filing that “LNG exports have already resulted in substantially increased inflation via higher natural gas and electric power prices”.

“Electricity bills are going to shock most consumers because it’s going to rise way above the current rate of inflation,” said Albert Lin, executive director at Pearl Street Station Finance Lab, an energy-focused advisory group. “This super-high price spike that everyone is witnessing in Europe is pulling up US prices because of LNG exports.”

US export capacity now stands at 14bn cubic feet a day, though more than 2bn cu ft/d is temporarily offline after an explosion at a terminal in Freeport, Texas. Capacity is on track to rise 40 per cent to 19.7bn cu ft/d by 2026 as new projects are completed, according to the EIA.

The multibillion-dollar expansions have drawn resistance from climate and environmental justice campaigners on the Gulf coast. Sierra Club, one of the US’s largest environmental groups, has put up “Stop LNG” billboards along highways in southern Louisiana, where several projects have received government approval.

“We are already overburdened and we already have communities that are living right next to petrochemical facilities that are already damaging the water and the air,” said James Hiatt of the Louisiana Bucket Brigade, which opposes the LNG projects. “Most of southern Louisiana will be underwater if we continue to pump these greenhouse gases, so we cannot continue this foolish exercise.”

Earlier this year a group of Democratic US lawmakers, including senators from New England states, urged the Biden administration to “limit US natural gas exports” while it examined the “impact on domestic energy prices”. Those calls could grow louder if energy prices jump this winter.

Analysts at ClearView Energy Partners, a Washington-based consultancy, said in a recent report they thought it was unlikely that the administration would curtail exports given its promises to Europe. But they added that higher domestic gas prices could lead it to delay approvals and permits for new projects.

“The administration recognises the urgency of which the rest of the world is looking for US natural gas,” said Charlie Riedl, executive director of the Center for Liquefied Natural Gas, a trade group. “Slowing that as a result of a winter of high prices here seems like a shortsighted geopolitical decision, and I would be surprised if this administration took that kind of action.”