The United States’ decision to temporarily freeze approvals for new liquefied natural gas (LNG) exports will have mixed effects on African exporters and importers of the commodity.
Announcing the move in late January, the Biden administration said it was halting approvals for new LNG construction proposals on environmental grounds.
“Today, the Biden-Harris administration is announcing a temporary pause in pending decisions on Liquefied Natural Gas (LNG) exports to countries outside the FTA until the Department of Energy can update the underlying analyzes for permitting…Today, we have an evolving understanding of the need of the market for LNG, the long-term supply of LNG and the dangerous effects of methane on our planet. We must also adequately guard against health risks to our communities, especially frontline communities in the United States that bear a disproportionate burden of pollution from new export facilities.”
That decision was challenged this week when the Republican-controlled House of Representatives approved a bill to strip the administration of its authority to freeze approvals, but the Republican effort is not expected to find support in the Democratic-controlled Senate. The administration’s decision to suspend approvals includes an exception for national security reasons.
While most analysts do not expect the move to cause dramatic price changes in the short term, a more prolonged ban could end up curbing supply and raising LNG prices.
“The pause is for new projects that will now not yet be sanctioned,” says Olumide Ajayi, senior LNG analyst at the London Stock Exchange Group.
“But there are a plethora of LNG projects already under construction. Therefore, the suspension will not have any effect on the current market situation or the offer. Obviously, if new projects were to stop indefinitely, that would become an issue further down the line, around 2027-8.”
Conflicting effects in Africa if the pause is extended
LNG prices have fallen over the past year after reaching a peak in August 2022 of $70.50 per million British thermal units (MMBtu) as demand picked up after European and North American countries moved to sanction Russian oil and natural gas. Prices have since fallen by more than 80% to around $10/MMBtu. Ajayi says Europe’s relatively mild winters over the past two years, China’s sluggish post-Covid economic recovery and rising global supply have all contributed to this bearish price environment.
This is also true in Africa, where Ajayi says “we’ve seen a lot of new big projects contributing to supply, like Mozambique’s floating LNG FLNG unit. Italy’s Eni has also started operating an LNG project in the Republic of Congo, which is set to export its first LNG in March.”
New projects around the world have created an “oversupplied market” for LNG, says Ajayi.
Therefore, African producers may hope that a sustained pause in new US exports could support higher prices for their own exports in the future.
But Ajayi notes that a counterintuitive consideration for some African countries is whether more expensive LNG would cause importers to opt for cheaper fossil fuels instead.
“Ghana and Senegal were supposed to start LNG import projects in 2021-22, but all have been suspended due to the high prices we saw during the pandemic,” says Ajayi.
“If LNG does not become competitive with local gas prices in West Africa, we will see further LNG projects like this delayed or scrapped. This is a problem for those who wish to encourage a switch to natural gas for reasons of sustainability, which is more environmentally friendly.”
Some African policymakers and resource miners argue that they should have free reign to exploit LNG, which they argue is a “transition fuel” between fossil fuels and renewables. However, the US decision to freeze new licenses on environmental grounds adds a new dimension to the debate and may provide ammunition for those already skeptical of the industry.