Published
February 14, 2024
Following the Biden Administration’s decision to halt reviews of liquified natural gas (LNG) export licenses, attention has rightly focused on the energy security and geopolitical ramifications of the decision. In justifying the new policy, Department of Energy (DOE) officials have suggested that allies and trading partners will not need additional LNG supply beyond the amount currently operating and under construction.
At the February 8 U.S. Senate hearing, for example, DOE Deputy Secretary David Turk repeatedly dismissed concerns that U.S. allies could face supply shortfalls, pointing to three International Energy Agency (IEA) modeling scenarios projecting future declines in global gas demand.
Turk’s testimony reflects a broader narrative of “demand denial” that has permeated the LNG debate. First, two of the three IEA scenarios in question are not actually forecasts but “backcasts”—estimates of demand reductions necessary to meet certain climate targets. IEA itself emphasizes that these scenarios are intended to be illustrative for policy purposes but should not be viewed as a realistic forecast of global energy trends. The third IEA scenario referenced by Mr. Turk (known as “STEPS”) is an actual projection, and it forecasts a slow but steady 15% increase in non-U.S. global natural gas demand through 2040.
This explains why the IEA’s 2023 gas market outlook report concluded that “demand growth in emerging and developing economies also means that investment in new LNG infrastructure is needed,” specifically calling for an additional 240 billion cubic meters (bcm) of new LNG capacity in 2050 beyond what currently exists or is under construction.
Committee Ranking Member John Barrasso (R-WY) zeroed in on an even more glaring problem with DOE’s bearish testimony on demand: it neglected to mention that the agency’s own Energy Information Administration (EIA)—arguably the gold standard in energy modeling—is extremely bullish on natural gas demand. As shown in the chart below, EIA is projecting non-U.S. global demand to grow by 48 percent through 2050, or more than 1,000 bcm higher than the IEA reference case.
Demand increases in the EIA’s high economic growth side case are nearly twice as rapid, at 84%, or more than 2,000 bcm higher than IEA (for perspective, total global demand today is only slightly over 3,000 bcm). This bullish outlook is echoed in other respected forecasts such as Japan’s Institute for Energy Economics and the BP Energy Outlook. If this consensus view is correct, a commensurate increase in LNG export capacity will obviously be needed to meet that demand.
What about Europe? The same disconnect between DOE’s official narrative and its own expert forecasts applies here as well. Deputy Secretary Turk’s testimony cited an IEA outlook projecting a short-term decline in EU gas demand through 2026 while failing to mention that EIA—the agency he oversees—expects natural gas demand in Western Europe to grow by 12 percent through 2050. In the strong economy side case, Western Europe would see 23 percent demand growth and 4 percent in the weak economy case. (Eastern European demand likely grows even faster but is not broken out by EIA.)
In December, a study from Rystad Energy examined Europe’s security outlook in great detail, concluding that if Russian natural gas imports are eliminated in the coming years as expected—and as we should hope—Europe will face a gas shortfall of 2100 bcm, or 37 percent of demand, between 2028 and 2040. A major reason behind this deficit is that while most demand growth will come from Asia, that actually presents a challenge for Europe because Asia has gobbled up the bulk of long-term contracts for future LNG facilities.
This critical point is overlooked when the DOE and advocates of the moratorium compare planned U.S. export capacity expansions to European demand in isolation. And to state the obvious, while Europe is garnering most of the attention surrounding the export freeze, supporting trading partners throughout the rest of the world is also in America’s interests.
The broader takeaway we should all agree on is that natural gas demand outlooks are complex and highly uncertain. Politicians, regulators, and modelers can all speculate, but the market speaks loudest, and it is doing so in the form of long-term multi-billion-dollar contracts for U.S. LNG.
One of those contracts is held by a German government-owned company aptly named Securing Energy for Europe (SEFE), which has told the U.S. government that the Calcasieu Pass 2 export facility—among the projects impacted by the Biden Administration’s freeze—is “vital to Germany’s energy security.” German gas association Zukunft is similarly warning that “the possibility of additional US LNG export capacities not materializing raises concerns about exacerbating the global supply imbalance, potentially extending the period of price volatility in Europe and leading to increased prices. This could have severe implications for economic stability and social impact.”
The final question that policymakers must ask is, "If not America, then where?" As Dr. James Watson of Eurogas testified to the Senate, the primary alternatives are Qatar and Russia. Qatar’s position as a top LNG competitor to the U.S. is well known, but Russia also has major ambitions, comprising 40% of non-U.S. export capacity seeking a final investment decision (FID). As a key ally, Mexico is home to another 15 percent of pre-FID capacity, but unbeknownst to many, these projects are also subject to DOE licensing and affected by the pause because they will be exporting gas produced in the United States.
It is no secret that we believe the Biden Administration’s moratorium on new LNG exports is a grave mistake that could have broad and lasting global security implications. But justifying the policy on the basis of dubious outlier IEA modeling while ignoring much stronger evidence to the contrary adds insult to injury. To better understand the need for expanded U.S. LNG capacity, DOE ought to begin with a look under its own nose at EIA’s natural gas demand outlooks. We owe it to ourselves and our allies.
About the authors
Dan Byers
Dan Byers is vice president for policy at the U.S. Chamber of Commerce’s Global Energy Institute with a focus on environmental and regulatory issues, Byers develops and implements strategies in support of the Institutes broader education and advocacy efforts.
