US LNG industry faces obstacles despite Trump’s backing

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President Donald Trump ordered the cancellation of Chevron’s special licence to operate in Venezuela on Wednesday, in an effort to coax the country’s authoritarian leader Nicolás Maduro into holding free and fair presidential elections.

The decision could inflict a damaging blow to Venezuela’s oil industry, according to analysts, who said Chevron was a crucial supplier of diluent — a substance used by oil producers to thin out the type of heavy crude oil extracted in the South American country.   

“The loss of diluent supplied by Chevron is a major problem — it was a lifeline for their production,” said Schreiner Parker, an analyst at Rystad Energy, a consultancy.

Meanwhile, my Energy Source colleagues Malcolm Moore and Tom Wilson reported on BP’s decision to ditch targets to cut fossil fuel production and develop renewable energy. The British oil major also announced plans to increase oil and gas spending by a fifth to $10bn a year, in a sign that it has bowed to pressure from activist investor Elliott Management after it built a near 5 per cent stake in the company.

In today’s Energy Source we take a closer look at the US LNG industry. President Donald Trump has used the super-chilled gas as a bargaining chip, warning the EU that it must commit to buying “large scale” amounts of US oil and gas or face tariffs. And on Wednesday he threatened to impose 25 per cent tariffs on EU imports.

But the American LNG industry’s expansion still faces challenges that could cause project delays.

Thanks for reading — Alexandra

Obstacles loom for US LNG industry despite Trump’s support

Donald Trump has sparked enthusiasm for US liquefied natural gas exports by lifting a pause on government permit approvals and pressing foreign leaders in Japan, India and Europe to buy more of the country’s super-chilled fuel.

But backers of more than a dozen proposed new LNG terminal projects in North America still face challenges in raising money and navigating legal hurdles that could slow the White House’s plans to “unleash American energy dominance”.   

This month the US Department of Energy approved Commonwealth LNG, the first major export project green lit since former president Joe Biden imposed a freeze on licences for LNG exports to non-free trade agreement (FTA) countries last year. The project, which is backed by Kimmeridge, an asset manager focused on energy, will be built in Cameron Parish, Louisiana, when it signs enough customer contracts to raise the estimated $4.8bn required to build the terminal.      

“We have been sitting in the queue for over two years and I think that has been unjustified, so we’re obviously happy to see the administration come in and act quickly . . . Our goal is to [make a final investment decision (FID] in early September,” said Ben Dell, managing partner of Kimmeridge, in an interview with Energy Source.

He said the Trump administration had created “good, positive momentum towards investment in infrastructure and energy”, but added that not every announced US LNG project would be completed. 

“Of all the announced [projects] somewhere close to 50 to 70 per cent [could go forward] depending on the environment and depending on your view on timing,” Dell said. “Part of that is just market conditions and it changes over time.”

Analysts say the risk of lower prices due to a possible LNG supply glut, litigation and limited infrastructure that is not prepared to meet a surge in demand can slow the American industry’s expansion. The US, which is already the world’s largest LNG producer, also faces mounting competition from Qatar, where state-owned energy companies can typically move rapidly to boost supply.  

“If [Trump] green lights all of these projects, there’s probably going to be an oversupply in the market globally,” said Mathieu Utting, an analyst at Rystad Energy.

“Obviously, you don’t want to oversupply the market because then prices are going to drop and then the profits for these LNG developers aren’t going to be what they are required to be to finance these projects,” he added.

Rystad Energy sees a risk of oversupply in the market in the mid-2030s. Similarly, JPMorgan expects increased capacity, driven by Qatar and North America, will cause prices to fall in the long term. The Wall Street investment bank forecasts the US will produce more than a third of global supply by 2030, a remarkable position given the country only began exporting LNG in 2016.

“We see a downward global LNG price trajectory with increased volatility, driven by a structurally oversupplied market,” said Shikha Chaturvedi, head of global natural gas and natural gas liquids strategy at JPMorgan.

Lower prices may deter producers from pursuing new projects that have become increasingly capital intensive. 

“Incentivising the US gas producer is getting tougher and tougher,” said Eugene Kim, research director at consultancy Wood Mackenzie. “The price to incentivise them has gone up because they need a higher rate of return to justify spending their capital.”

Some developers may face legal obstacles and other challenges that may slow the expansion of US liquefaction capacity. 

“Developers will still face legal obstacles and challenges in securing sufficient certainty over supply and offtake as LNG buyers seek diversification of their supply portfolios and competing supply projects emerge around the world,” according to Laurent Ruseckas, executive director of research at S&P Global Commodity Insights.

Many in the industry are hoping for regulatory predictability so that permits are not vulnerable to a change in administration. 

“Even post-FID projects may need to address legal challenges from environmental groups that could lead to delays,” Ruseckas said. 

Despite the challenges, global demand for LNG is still strong. Shell forecasts that it will rise by about 60 per cent by 2040, largely driven by economic growth in Asia.

But contract signing has slowed in the US after the Biden administration’s pause on non-FTA export licences resulted in only one approval in 2024. Shell noted in its latest LNG outlook that US LNG selling had slowed after record contract signings in 2021 to 2023, adding that further growth from the country came with “risks” such as regulatory uncertainty and construction costs.

The US is a key component of supplying enough LNG to the world, and although it has enough supply there are deliverability issues. 

“The US doesn’t have a supply problem, they do have a deliverability problem,” Kim said. 

Potential constraints in pipeline infrastructure and storage capacity could challenge the timing and pace of the expansion. Interstate pipelines, in particular, have been challenging to build in recent years because of state and public opposition. 

“We have a robust interstate gas pipeline system that already is in operation, but we clearly are going to need more in order to satisfy the increased demand for natural gas,” Charlie Riedl, president of the Center for LNG, said. 

Analysts say LNG producers cannot rely on Trump’s tariff threats to prompt private industry customers to sign the long-term deals typically needed to help finance new terminals. If anything, tariffs increase uncertainty and act as a drag on the sector, they say.

“Many world leaders want to offer Trump a win to defuse his tariff threats, but LNG deals are an awkward fit. Companies sign contracts, not governments, and they do not sign 15- to 20-year deals on a whim,” Ben Cahill, director for energy markets and policy at the Center for Energy and Environmental Analysis, wrote in a column at Barron’s. 

Kimmeridge’s Dell said the company was still trying to understand the potential impact that tariffs might have on Commonwealth LNG.

“We see nothing right now that would change our view of doing FID on the planned timeline,” he said. (Alexandra White)

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Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.