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The U.S. liquefied natural gas industry is facing growing challenges as legal battles with activists and contractors and a federal permitting freeze slow the expansion of the world’s largest exporter.
Two multi-billion-dollar terminals under construction on the Texas Gulf Coast, financed by major companies ExxonMobil and TotalEnergies, suffered fresh setbacks this month that are expected to lead to delays.
This has added to the uncertainty about future supply growth created by the halt to new export permits under the Joe Biden administration and has highlighted the complexity of implementing large LNG projects.
“LNG plants are energy infrastructure – and building energy infrastructure in America today is difficult,” said Kevin Book, managing director of ClearView Energy Partners.
The U.S. LNG industry has boomed in recent years due to increasing demand from abroad, especially as Europe seeks to reduce its dependence on Russian gas following Moscow’s large-scale invasion of Ukraine.
In 2023, the US overtook Australia to become the world’s largest exporter, delivering 11.9 billion cubic feet of liquefied natural gas (LNG) per day – enough to meet the entire gas needs of Germany and France. And the industry has ambitious plans to double its exports by the end of the decade.
But despite the huge demand for U.S. molecules, the challenges of bringing new terminals worth tens of billions of dollars into operation are increasing.
ExxonMobil and QatarEnergy this month delayed the start of their $11 billion Golden Pass project in Texas by six months, to late next year, after a dispute with prime contractor Zachry Holdings over the project’s spiraling costs. Zachry filed for bankruptcy in May.
An agreement with Zachry in recent weeks has allowed the owners to hire a new prime contractor and proceed with construction. Exxon Chief Financial Officer Kathy Mikells welcomed the agreement, telling the Financial Times it will allow the company to “complete the project.”
NextDecade’s $18 billion Rio Grande project also suffered a setback this month after a court threw out a key regulatory approval following a lawsuit by environmental and citizen groups.
The company, 17 percent owned by French group TotalEnergies, said it would take “all available legal and regulatory measures” to ensure that the first phase of the project, which is scheduled to go online in 2027, is completed on time and that subsequent phases are not “unduly delayed.” NextDecade’s shares have fallen about 40 percent since the ruling.
“This decision has far-reaching implications beyond this project,” NextDecade CEO Matt Schatzman said in a statement to the FT.
“If the ruling stands, the precedent that would be set by the court’s decision could affect the viability of all infrastructure projects approved by the federal government, as those projects will have difficulty attracting capital investment until they receive final, non-appealable approvals.”
When the Golden Pass and Rio Grande facilities are fully operational, combined export capacity will reach up to 5.9 billion cubic feet per day, nearly half the amount the U.S. shipped last year.
Delays in the commissioning of US projects threaten to further strain an already tight market and drive up prices. According to Wood Mackenzie, the Golden Pass delay will remove 2.3 million tonnes of supply from the market next year and 5.2 million tonnes in 2026.
The latest setbacks compound the difficulties of an industry whose rapid expansion since its founding in 2016 hit a roadblock this year after the Biden administration halted new export permits for terminals in January while the Energy Department conducts a review of the benefits.
Since then, there has been a significant slowdown in the release of projects. Last year, three projects with a record capacity of 37.5 million tonnes per year reached the decisive stage of final investment decisions, according to Wood Mackenzie. This year, no projects have done so.
Although Biden’s moratorium was blocked by a federal judge last month, no new permits have been issued since then and industry players do not expect any change before the presidential election in November.
“Developers and LNG buyers are waiting for clarification from the courts and the U.S. election to remove uncertainty,” said Mark Bononi, analyst at Wood Mackenzie.
The Energy Department’s review is expected to be completed by March 2025. Republican presidential candidate Donald Trump has announced that if he is re-elected, he would begin issuing permits immediately. Analysts believe that Democratic candidate Kamala Harris would also quickly end the freeze.
But Harris faces strong opposition from environmental groups and local activists to speed up the permitting process for an industry they say has destroyed coastal ecosystems and harmed local communities.
The Carrizo/Comecrudo tribe in Texas, one of the plaintiffs in the case against NextDecade, said the project trampled on sacred land and vowed to continue to vigorously oppose it. “We will fight to the last penny,” tribal chairman Juan Mancias told the FT.
Uncertainty in the US has prompted some buyers to look overseas, but industry insiders warn that the move could derail some projects entirely as major clients seek contracts with clearer timelines.
“It’s not good for these projects to remain in limbo for so long,” says Jason Bennett of the law firm Baker Botts. “Buyers will always buy LNG and want to buy it within a certain time frame.”
