The U.S. Should Not Politicize LNG Exports

While children’s Christmas fears have traditionally been reserved for lumps of coal, it was natural gas that may have frightened many people heating their homes and lighting their trees this holiday season. On New Year’s Day, Russian natural gas stopped flowing to Europe via a pipeline through Ukraine that has operated for a half century, just days after Ukraine received its first shipment of liquefied natural gas (LNG) from the United States. These simultaneous milestones highlighted the critical role in Europe’s energy security now played by American gas exports, which surged to record levels last December.

Even though roughly two-thirds of those LNG exports in December went to Europe, U.S. President-elect Donald Trump’s holiday gift to the continent was to threaten tariffs on Europe’s exports if it does not buy even more U.S. natural gas. Trump thereby stands in stark contrast to the Biden administration, which had warned only a few days before that more gas export permits would harm the U.S. economy and worsen climate change. While those pronouncements were not supported by the administration’s own analysis, ironically, it is the incoming Trump administration that may face a conflict between its zeal for more gas exports and the pledge to slash domestic energy prices.

Natural gas prices have soared in both Europe and the United States in recent weeks, although they remain much cheaper in the latter. Europe’s energy situation this winter offers a stark reminder that its energy crisis, caused by Russia’s cessation of most gas pipeline exports, is far from over. In the last two weeks of 2024, European gas prices surged to levels roughly twice what they were in February. A colder winter compared to previous years, along with slumping wind and solar power due to calm winds and covered skies (a frequent winter phenomenon in northern Europe known as dunkelflaute, or dark calm), is pushing up natural gas demand and drawing down inventories much faster than last year. European gas prices for this summer are also trading at a record premium to next winter, raising concerns about refilling inventories.

Europe still depends significantly on Russia for its energy security, importing slightly less than one-third as much gas from Russia in 2024 than it did before the invasion of Ukraine. The end-of-year expiration of an agreement that allowed roughly half of Europe’s pipeline gas imports from Russia to flow through Ukraine is forcing Europe to cope with the loss of around 5 percent of its gas supply.

To be clear, while European leaders are lamenting today’s high energy prices, the current situation is the new reality that European Union leaders embraced when they committed to phasing out all fossil fuel imports from Russia by 2027. As Russian President Vladimir Putin progressively cut gas supplies throughout 2022, Europe turned to LNG shipments to fill the gap, along with renewable energy and destruction of industrial gas demand by high prices. In doing so, Europe traded the geopolitical constraints of Russian gas dependency for the vicissitudes of the global LNG market.

As a result, Europe is now vulnerable each winter to paying whatever price is required to lure LNG supply from rapidly growing LNG users, such as China, India, and Southeast Asia. Europe is also vulnerable to the whims of LNG exporters. Despite pledges from the European Commission to eliminate Russian gas imports to Europe, Russian LNG flows to Europe actually rose in 2024. Meanwhile, Qatar, another of Europe’s key LNG suppliers, recently threatened that it would not supply any additional LNG to the EU if the latter enforces a new sustainability law, due to come into effect in 2027, that penalizes companies for failing to meet certain labor and environmental standards.

While Europeans took solace in soaring U.S. shipments of LNG after Russia’s invasion of Ukraine, the Biden administration’s statements on the economic and environmental impacts of exporting more American gas may cause concern among importers. U.S. Energy Secretary Jennifer Granholm summarized the findings of a highly anticipated study by warning about the economic harm and higher costs borne by American consumers and industrial firms of “unfettered” LNG exports, as well as warning about the climate impacts of U.S. gas exports.

In reality, a careful reading of the 600-page study provides little support for the contention that additional LNG export permits are contrary to the “public interest,” the standard against which federal law requires permit applications be evaluated.

The study models a myriad of scenarios for potential U.S. LNG export volumes through 2050. As so often with such studies, the problem lies in the assumptions: The scenario with the highest level of exports assumes that no additional climate policies are adopted in the United States or any other country for the next quarter century. In that seemingly unlikely scenario, U.S. LNG exports quadruple to 580 billion cubic meters (bcm) per year in 2050 and global LNG trade rises to 1,650 bcm. For comparison, the International Energy Agency projects all global LNG trade will only be 830 bcm by 2050 based on current policies. Even BP projects only 990 bcm.

Even in the Biden administration’s far-fetched scenario of soaring exports, the forecasted price of natural gas rises only from around $3.50 per MMBtu today to around $4.60, adjusted for inflation. In comparison, the price of natural gas in Europe today is more than $15 per MMBtu.

The negative climate impacts are even more negligible. In the scenario described above, global greenhouse gas emissions in 2050 are 0.05 percent higher than they would otherwise be. In a scenario where countries meet their current climate commitments (and only moderate levels of carbon capture technology are assumed), emissions in 2050 would be just 0.005 percent higher.

Moreover, most of the projected price increase has nothing to do with decisions about whether to issue new export permits now, which is what the study was intended to be used for. U.S. LNG exports are already going to roughly double in the next few years. Even in the most extreme scenario, approximately two-thirds of the rise in exports is from projects already permitted. Indeed, in each of the main scenarios modeled by the Biden administration, except the very highest and least likely one, total U.S. gas exports in 2050 are below the level of export permits that have already been granted.

The Biden administration’s characterization of the study is perhaps most problematic because of the signal it sends to other countries about the United States’ reliability as an energy producer and participant in interconnected global energy markets. After decades of criticizing other countries for withholding energy supplies from the global market to advantage their own economic interests, allies may understandably be concerned if a relatively modest price impact in a far-fetched scenario 25 years later triggers the kind of economic alarm expressed by the outgoing administration.

These worries may seem moot given that the Biden administration is leaving office soon. Yet, ironically, it may be the Trump administration that has to decide whether higher export levels are worth the price to American consumers and businesses. In the long run, the United States has ample supplies of cheap natural gas to supply other countries. Yet in the next few years, new LNG export terminals, as well as the rapidly rising power needs of artificial intelligence, could boost U.S. demand for natural gas by as much as 15 to 20 percent. Citi analysis projects the price of domestic gas to be 75 percent higher this year and twice as high next year compared to 2024. And the steep and rapid increase in gas demand could cause far sharper short-term surges in domestic gas prices as gas production, pipeline connections, and other related infrastructure takes time to catch up. Despite Trump’s pro-export rhetoric, he may well end up having to decide whether to lower domestic energy prices in order to put “America First” rather than send U.S. energy to the rest of the world.

If the Trump administration wants to use LNG exports to bolster the United States’ energy dominance, it should refrain from politicizing energy exports and strengthen efforts to reduce the carbon footprint of U.S. gas production as more countries, particularly in Europe, scrutinize that impact. Additionally, in today’s era of rising domestic electricity demand, the Trump administration should ensure energy prices stay low for U.S. firms and households—a key element of the country’s competitive advantage—by making it easier to build new infrastructure through permitting reform and supporting the rapid expansion of a diverse mix of energy sources that include not only oil and gas, but also renewables and nuclear power.