The United States’ decision to temporarily cease approvals for new liquefied natural gas (LNG) exports will have conflicting impacts on African exporters and importers of the commodity.
Announcing the move in late January, the Biden administration said it was pausing approvals for new LNG construction proposals on environmental grounds.
“Today, the Biden-Harris Administration is announcing a temporary pause on pending decisions on exports of Liquefied Natural Gas (LNG) to non-FTA countries until the Department of Energy can update the underlying analyses for authorizations…Today, we have an evolving understanding of the market need for LNG, the long-term supply of LNG, and the perilous impacts of methane on our planet. We also must adequately guard against risks to the health of our communities, especially frontline communities in the United States who disproportionately shoulder the burden of pollution from new export facilities.”
That decision was this week challenged when the Republican-controlled House of Representatives passed a bill to strip the government of the power to freeze approvals, but the Republicans’ effort is not expected to find support in the Democratic-controlled Senate. The administration decision to pause approvals includes exemption for national security reasons.
While most analysts do not expect the move to cause dramatic price movements in the short-term, a more prolonged ban could end up limiting supply and driving up LNG prices.
“The pause is for new projects that will now not be sanctioned yet,” says Olumide Ajayi, a senior LNG analyst at the London Stock Exchange Group.
“But there’s a plethora of LNG projects that are already under construction. The pause will therefore have no bearing on the current market situation or supply. Obviously if new projects were halted indefinitely, this would become an issue further down the line, around 2027-8.”
Conflicting impacts in Africa if pause extended
LNG prices have eased in the last year after reaching a peak in August 2022 of $70.50 per one million British thermal units (MMBtu), when demand rose after European and North American countries moved to sanction Russian oil and gas. Prices have since fallen by more than 80% to around $10/MMBtu. Ajayi says that Europe’s relatively mild winters over the last two years, China’s sluggish post-Covid economic recovery, and the ramping up of supply globally have contributed to this environment of falling prices.
This is true in Africa, too, where Ajayi says “we have seen several new major projects contributing to supply, such as Mozambique’s FLNG floating LNG unit. Italy’s Eni has also started operating an LNG project in the Republic of the Congo, which is due to export its first LNG in March.”
New projects around the world have created an “oversupplied market” for LNG, Ajayi says.
African producers might therefore hope that an enduring US pause on new exports could support higher prices for their own exports in the future.
But Ajayi notes that an opposing consideration for some African countries is whether more expensive LNG would instead make importers opt for cheaper fossil fuels instead.
“Ghana and Senegal were supposed to start up LNG importing projects in 2021-22 but they have all been suspended because of the high prices we saw during the pandemic,” Ajayi says.
“Unless LNG becomes competitive with local gas prices within West Africa, we will see further LNG projects like this delayed or scrapped. That is a problem for those wishing to encourage the transition to natural gas on sustainability grounds, which is more environmentally friendly.”
Some African policymakers and resource extractors argue that they should have free reign to exploit LNG, which they argue is a “transition fuel” between fossil fuels and renewable energy. However, the US decision to freeze new permits on environmental grounds adds a new dimension to the debate and may provide ammunition for those already sceptical towards the industry.