Speaker Johnson Pursues an LNG Gift for China
The oil & gas lobby wants the GOP to shove their gas export plan into a Ukrainian aid package. Johnson likes the idea.
Speaker Johnson has promised to bring a Ukrainian aid package to the floor when the House returns from Easter recess. A $95 billion package won bipartisan Senate approval, but House Republicans rejected the plan and have been unable to coalesce around an alternative. This leaves Johnson searching for ways to sweeten the deal for Republicans and unite his fractured party. His oil and gas allies see an opportunity.
According to The New York Times:
Privately, Mr. Johnson has expressed an interest in linking Ukraine aid to a measure aimed at forcing the Biden administration to reverse its moratorium on liquid natural gas exports, according to three people familiar with his deliberations who were not authorized to discuss them. Mr. Johnson pressed the issue at a White House meeting last month with President Biden and congressional leaders, arguing that by prohibiting new exports of domestic energy, the administration was increasing reliance on Russian gas, effectively enriching Ukraine’s enemy.
In that meeting, according to a person familiar with the comments, Mr. Johnson raised the case of Calcasieu Pass 2, a proposed export terminal that would be situated along a shipping channel that connects the Gulf of Mexico to Lake Charles, La., and would dwarf the country’s existing export terminals. The Biden administration in January had paused a decision on whether to approve it.
President Biden's pause on new permits is not an LNG moratorium. The pause hasn’t stopped a single drop of LNG from flowing to Europe. It also doesn’t touch a second wave of US LNG projects already under construction, doubling US LNG capacity in the next three years. When these facilities are finished, US LNG export capacity will far exceed Europe’s needs.
The LNG permitting pause only affects the third wave of US LNG projects that have not received permits and will not come online for five years or more.
Which is why Biden isn’t interested in bargaining with Johnson on LNG, according to White House Press Secretary Karine Jean-Pierre. Instead, Biden wants Johnson to bring the bipartisan Senate bill, which does not have an LNG poison pill, to the House floor. And the president remains strongly behind its LNG pause, according to Jean-Pierrre:
“The president supports the pause on pending, additional approvals of LNG export licenses to evaluate the economic and climate impacts on consumers and communities.”
Johnson, for his part, is trying to loosely tie LNG to the Ukrainian aid bill by claiming (on FoxNews Sunday) that expanding natural gas exports will “help unfund Vladimir Putin’s war effort.”
It’s not unusual for lawmakers to twist the truth to seize a political opportunity. But this is a whopper, even by Washington standards. A move to expand US LNG exports would be celebrated in China, not Europe.
Here’s why.
China is the Largest Importer of LNG in the World
China, the largest importer of LNG in the world, is all-in on US LNG. Two Chinese banks (the Bank of China and the Industrial and Commercial Bank of China, or ICBC) have helped finance eighty percent of US LNG projects that are operating today or have fully secured financing.
China has also been gobbling up long-term contracts to buy US LNG.
Venture Global, the company behind the massive Calcasieu Pass 2 (CP2) LNG project in Louisiana, has contracts to sell 11.8 million tonnes of US LNG annually to Chinese firms (Sinpoec, China Gas, and China National Offshore Oil Corp) across its US LNG projects.
Sending this amount of LNG to China will require more natural gas than all the manufacturing industries in Pennsylvania and Ohio currently consume.
The US oil and gas lobby acknowledges that China is buttering its LNG bread. In a letter to DOE, the American Petroleum Institute (API) argues (incorrectly) that LNG is needed to “force quickly developing nations—specifically in Asia—to abandon plans to reduce emissions and increase coal consumption.”
API claims LNG is destined for China to reduce greenhouse gases while simultaneously destined to Europe to replace Russian gas. That requires the gas to be in two places at once. I’ve heard of magical thinking, but that is magical gas.
Perhaps they are confusing physics with profits. When it comes to getting rich, many hands are in the till. China often profits as the middleman in the US LNG trade and has been reselling US gas exports to Europe at a significant markup. According to the Wall Street Journal:
“Chinese companies that signed long-term contracts to buy U.S. liquefied natural gas are selling the excess and making hundreds of millions of dollars per cargo.”
Johnson’s China Test
If he pushes Democrats on LNG, Johnson will face an uncomfortable test on the China question as he drafts the measure. It would be relatively straightforward to add language banning US LNG exports to China as part of any effort to reverse Biden’s pause. After all, Johnson supported a simple one-page bill that prohibited oil sales from the Strategic Petroleum Reserve to China. The SPR vote, however, was an exercise in political theater that didn’t threaten the oil and gas lobby because there were never any plans to sell SPR oil to China. LNG is another matter.
It’s a safe bet that Johnson will fail this test and attempt to dodge the China issue altogether. His oil and gas allies know any restrictions on sales to China would crush the business model driving the next wave of LNG expansion. Without their best customer, the LNG industry won’t spend billions of dollars on new facilities.
The China issue may be more difficult to avoid in the Senate, where Democratic Senators Sherrod Brown and Jeff Merkley recently introduced legislation banning LNG exports to China.
Looking Past the National Security Smokescreen
The counterfactual national security claims being advanced by the oil and gas lobby are intended to obscure the issues that are genuinely at stake because they know they are on shaky ground.
A long-term buildout of gas exports undermines global progress toward clean energy and climate solutions while adding toxic pollution to communities already overburdened by environmental injustice.
Allowing a third wave of LNG exports would also prioritize oil and gas interests over the public’s economic interests. Consider what has happened since the U.S. first exported LNG in 2016. Between 2016 and 2023, the price that U.S. households pay for natural gas increased by more than 50%.
Looking forward, expanding US exports of natural gas could increase energy prices for families and businesses here in the United States by $14 billion annually.
This LNG-driven energy inflation will hit energy-intensive manufacturing especially hard. According to a 2018 Resources For the Future study, even a modest (3 - 9%) increase in domestic natural gas prices due to natural gas exports would eliminate 0.3 - 0.7 percent of manufacturing jobs in energy-intensive manufacturing industries. Tens of thousands of good-paying manufacturing jobs are at risk.
Biden did the right thing when he called a timeout on new permits for the planned third wave of LNG expansion. The House can have its say, but holding the Ukrainian aid bill hostage on behalf of wealthy oil and gas corporations would be a mistake.
This post was updated on April 5, 2024, to include Speaker Johnson’s latest comments and the reaction from the White House.