Energy Dept. Study of LNG Exports Finds No Grounds to Bar Blanket Denials of Permits
Nearly a year ago, President Biden ordered a pause on applications to export liquefied natural gas (LNG) to countries that lack a free trade agreement with the United States. The freeze covered European countries that have been importing American gas to make up for disruptions in Russian supplies because of the Ukraine war.
At the time, the Department of Energy (DoE) said the pause was “put in place to allow the department to update climate and economic analyses used to decide whether authorizations are in the public interest.”
A court issued an injunction to block the pause in July, and the Biden Justice Department asked in November for a reversal. But the bigger issue was whether new LNG infrastructure will be allowed to be built at all.
At last, DoE has issued its update. In a Dec. 17 statement accompanying the study, Energy Secretary Jennifer Granholm wrote, “Today’s publication reinforces that a business-as-usual approach is neither sustainable nor advisable.”
In a summary of the letter, the New York Times wrote that Granholm concluded from the study: “If the United States were to continue exporting liquefied natural gas in the way that has made it the world’s biggest gas supplier, it would drive up costs for American consumers and businesses, pollute struggling communities and increase global greenhouse gas emissions.”
The report, however, “does not provide grounds for the federal government to issue blanket denials of the final permits for future natural gas terminals,” said the Times. Under federal law, two agencies approve LNG projects — the Federal Energy Regulatory Commission (FERC) for location and construction and DoE to determine if exports are “in the public interest.” That will continue, and, so far, DoE has never denied such a permit.
According to E&E News, the report “is likely to provide fodder for legal challenges” to future LNG projects, but it “didn’t directly call for a hard limit on U.S. LNG exports,” nor did it “deliver a knockout blow to LNG supporters awaiting President-elect Donald Trump’s return to the White House.” Instead, the new administration “can be expected to move ahead quickly with new gas export approvals.” But, as Republican leaders of the House Energy and Commerce Committee feared, the study, issued with just a month to go in President Biden’s term, could hamstring the incoming administration and slow LNG approvals.
Granholm’s statement said:
The pace of growth of U.S. natural gas exports in recent years is truly astounding and many analysts say continued growth on this trajectory will quickly outpace global demand. By itself, this rapid growth to date – and the continued growth we expect under existing authorizations – recommends a cautious approach going forward. U.S. LNG exports have already tripled over the past five years, will double again by 2030, and could double yet again under existing authorizations.
The study contends that “unfettered exports of LNG would increase wholesale domestic natural gas prices by over 30%,” raising annual household costs by $100 by 2050. Even if the projection is accurate, that’s a rate of only about 1% per year.
“The more volumes of U.S. LNG are exported,” said the Secretary’s statement, “the greater the risk of this global price volatility being imported into our domestic market and impacting U.S. consumers and manufacturers.” The argument is that sending gas abroad reduces supply at home – and thus prices will rise (or become more volatile).
But, of course, such a calculation assumes that natural gas production is fixed and won’t rise as it has substantially in recent years, more than doubling since 2005.
The U.S. became the world’s largest exporter of LNG in 2023, and as shipments have risen, the price of natural gas has not risen. It has dropped. A study from Energy Ventures during the pause found that despite a record level of natural gas exports during the first six months of 2023, U.S. natural gas prices at Henry Hub averaged $2.48 per million British Thermal Units (MMBtu), the lowest six-month average in over 35 years, outside of the COVID-19 pandemic and temporary post-pandemic supply chain issues.
As this chart using data from the U.S. Energy Information Administration (EIA) shows, despite the huge increase in LNG exports in recent years (doubling from 2018 to 2022), the U.S. has the second-lowest natural gas prices among industrialized nations.
The Center for Strategic and International Studies concluded earlier this year during the pause that LNG exports have little to no impact on domestic gas prices. “Put simply,” says the Energy Ventures study, “growing demand begets growing supply.” What will push up prices is not exports but restrictions on the development of natural gas infrastructure and thus supply.
Granholm also stated that “the climate impact of ever greater exports of LNG merits a close and rigorous focus.” She admits that LNG has reduced the “use of coal overseas,” but the DoE analysis projects that over time, “U.S. LNG exports displace more renewables than coal globally.”
In a press release on Dec. 17, the National Ocean Industries Association (NOIA), an organization of offshore oil, gas and wind companies, argued that “ending the pause would mark a significant step towards reducing emissions. NOIA added:
Carnegie Mellon University research indicates that converting all U.S. coal plants to natural gas could substantially decrease sulfur dioxide and nitrogen oxide emissions, potentially saving $20–50 billion in healthcare costs annually due to improved air quality. By exporting LNG, we can extend these environmental benefits globally, aiding in the shift away from coal to cleaner energy alternatives.
Finally, Granholm argues that “targeted guardrails” may be necessary to limit exports to China. She agrees that “over the past few years, U.S. LNG has proven critical for our allies in Europe as they wean themselves off Russian gas.” But she says that “European demand for natural gas has flattened and is set to decline substantially in line with Europe’s efforts to reduce its climate footprint.” Growth is moderating as well in Japan and South Korea.
But she states, China is “already the world’s largest importer,” and “PRC entities have already signed several contracts with operating or proposed U.S. LNG projects. Future authorization decisions of what is in the ‘public interest’ need not be made solely on a binary – yes or no – basis but could be undertaken using a broader framework of requirements for all authorizations.”
Granholm wants the federal government to scrutinize each proposed project and consider the economic, environmental and national security issues. According to the Times:
The report may compel companies seeking permits to more thoroughly demonstrate that they have mitigated the greenhouse pollution associated with extracting and transporting the gas, and also force future administrations to show how they have reconciled decisions to approve new terminals with the report’s findings.
The report could provide a legal argument for those seeking to sue to stop permits for export terminals in the future, senior Biden Administration officials said.
“If Trump wants to say ‘Yes’ on day one, and there is a study that says ‘Yes’ isn’t in the public interest, then those approvals might be targets of legal challenges,” said Kevin Book, managing director of consulting firm ClearView Energy Partners, quoted in Issue No. 42 of this newsletter.
The E&E News article quoted Mark Brownstein, senior vice president for energy transition at the Environmental Defense Fund, as saying that Congress will require any administration to make a “national interest” determination on gas exports regardless of who occupies the White House.
But Scott Segal, a partner at the Bracewell law firm, said that the report will likely be withdrawn by the Trump Administration “to remove any patina of the authoritativeness it might have. One thing that should not be tolerated would be the use of this report in future legal challenges on whether export approvals are in the public interest.”
NERC’s New Long-Term Reliability Assessment Finds a Risk of Shortfalls in More Than Half of North America
The U.S. bulk power system “faces mounting resource adequacy challenges over the next 10 years, as surging demand growth continues, and thermal generators announce plans for retirement.”
That is the conclusion of the North American Electric Reliability Corporation (NERC) in its latest Long-Term Reliability Assessment. The sobering judgment of NERC — a non-profit regulatory authority charged with maintaining the reliability of the bulk power system (BPS) on this continent — should come as no surprise to readers of this newsletter.
The trends point to critical reliability challenges facing the industry: satisfying escalating energy growth, managing generator retirements, and accelerating resource and transmission development.
Utility Dive’s coverage summarized: “More than half of North America faces a risk of energy shortfalls in the five to 10 years as data centers and electrification drive electricity demand higher and generator retirements threaten resource adequacy.”
NERC found that the area covered by MISO (the Midcontinent Energy System Operator), which ranges from Minnesota to Louisiana, currently has a “high” risk level. “Resource additions are not keeping up with generator requirements and demand growth,” stated NERC in its report. “Reserve margins fall below Reference Margin Levels in winter and summer.”
In vast areas of the U.S. and Canada, risk is “elevated,” concluded the report. For example, in the PJM Interconnection region, which includes all or part of 13 states and the District of Columbia, NERC says retirements of fossil fuel generating plants are also exceeding new electricity resources in the face of rising demand – a condition that prevails as well in California.
New England has “persistent winter natural gas infrastructure limitations,” says the NERC assessment, while the Southwest also risks electricity shortfalls from a lack of natural gas as well as from low wind conditions. In Texas, ERCOT must cope with “surging load growth” that is “driving resource adequacy concerns as the share of dispatchable resources in the mix struggles to keep pace.” NERC issues a special warning about “extreme winter weather” in Texas causing “severe load-loss events,” as we have witnessed in recent years. (see below)
Elevated risk levels also prevail in the Southeast U.S. and Plains states, as well as Manitoba, Saskatchewan, Ontario, British Columbia, and parts of Mexico.
New resources are under development, but the process is slow, and much of the generation is coming from wind and solar, which, says the report, are “variable and weather-dependent,” compared with the dispatchable resources they are replacing.
“Natural gas-fired generators are a vital resource,” NERC states. They can “ramp up and down to balance a more variable resource mix and are a dispatchable electricity supply for winter and times when wind and solar resources are less capable of serving demand.”
NERC worries that “natural gas pipeline capacity additions over the past seven years are trending downward, and some areas could experience insufficient pipeline capacity for electricity generation during peak periods.” And while planned electricity transmission projects are on the increase, NERC expresses concern that “development continues to be affected by siting and permitting challenges.”
Reform of the current permitting process – including delays in adjudication – still awaits government action. The Energy Permitting Reform Act — the compromise that Sens. Joe Manchin (I-WV) and John Barrasso (R-WY), the chairman and ranking member of the Senate Committee on Energy and Natural Resources, worked out in recent months – failed to pass Congress.
“It’s a shame that our country is losing this monumental opportunity to advance the commonsense, bipartisan permitting reform bill that has strong support in the United States Senate,” Sen. Manchin said in a written statement Dec. 16.
According to a report in The Hill, Manchin blamed House Republican leaders, saying:
By taking permitting off the table for this Congress, Speaker Johnson and House Republican Leadership have done a disservice to the incoming Trump Administration, which…will now be forced to operate with their hands tied behind their backs when trying to issue permits for all of the types of energy and infrastructure projects our country needs.
Sen. Manchin, who leaves the Senate in January, may be too pessimistic. The Trump Administration is almost certainly aware that, as an energy policy, “drill, baby, drill,” needs to be accompanied by changes to streamline infrastructure development.
The bill’s provisions improve FERC’s authority to approve transmission projects, build out interregional transmission lines, and expand efforts to make the grid more reliable.
In its discussion of rising demand, the NERC report stated, “Energy growth forecasts over the 10-year assessment period continue to climb; demand growth is now higher than at any point in the past two decades, increasing amounts of large commercial and industrial loads are connecting rapidly to the BPS.” NERC cited the growth of “data centers (including crypto and AI),” as well as “the continued adoption of electric vehicles and heat pumps.”
A November report from the advisory firm Grid Strategies found that “the era of flat power demand is behind us.” The report stated:
Over the past two years, the 5-year load growth forecast has increased by almost a factor of five, from 23 GW [gigawatts] to 128 GW….The official nationwide forecast of electricity demand shot up from 2.8% to 8.2% growth over the next five years to 66 GW through 2029 — but with an additional 61 GW of growth in preliminary updates, nationwide electric demand is forecast to increase by 15.8% by 2029.
The report cited data center load growth as the single largest component of increased demand. That growth is concentrated in just a few areas: North Virginia, Pennsylvania, Dallas and Atlanta.
Grid Strategies pointed to six regions that are driving demand growth, several of them, such as PJM and ERCOT, especially affected by data centers. Georgia Power is also seeing a surge from data centers, and the Pacific Northwest is being pressed by both the centers and chip-fabrication plants. A surge in manufacturing is raising demand in Ohio and other states in the central United States.
“’We are now looking at the latter half of this decade showing 3% annual average load growth,” said John Wilson, vice president of Grid Strategies, in a call with reporters. “We haven’t seen that kind of load growth since the 1980s.”
Todd Snitchler, CEO of Electric Power Supply Association (EPSA), a trade group that represents competitive power suppliers, said in a Dec. 17 press release:
As NERC’s report makes clear, demand for electricity is expected to continue to surge, requiring extensive investments in new resources and slowing the trend of dispatchable resource retirements. Competitive markets remain the best vehicle to ensure reliability during this transformational period, while delivering lower emissions and cost-effective reliability. Relying on the integrated resource planning used by utilities and the business model of the last century is no way to meet the moment.
The CEO of the National Mining Association, Rich Nolan, noted that, on the heels of the NERC assessment, the “Trump administration has an urgent opportunity to respond to the pleas of the nation’s reliability regulators, grid operators, utilities and the states to pursue a regulatory and energy policy pivot that addresses this unfolding electricity supply crisis. Fundamentally, we cannot short-change the bridge to our energy future, and that requires recognizing the ongoing critical importance of the fuel-secure, dispatchable power provided by the nation’s coal fleet.”
NY Governor Vetoes Bill to Create a Grid Modernization Commission
“As concerns mount over the future reliability of the state’s power grid,” reported New York’s Post-Journal on Dec. 19, “Gov. Kathy Hochul has vetoed legislation creating a Grid Modernization Commission.”
Like many other states, the reliability of New York’s grid is threatened by a combination of rising demand for electricity, the retirement of aging infrastructure and the lack of dispatchable resources to pick up the slack.
Legislation was passed unanimously by the state’s Senate and Assembly earlier this year that would have established a commission to address challenges identified in the 2021-2040 System and Resource Outlook issued by the New York Independent System Operator (NYISO).
That report said that the “state’s electricity generation, transmission and demand landscape is rapidly changing.” The shift requires a “re-thinking” – which was going to be the job of the commission that Hochul vetoed.
“I share a strong desire in addressing the problems and issues identified in this legislation, and I commend the Legislature for seeking to address such a broad array of problems,” the Governor said in her veto message. “However, enactment of this package of legislation would collectively cost the state approximately $24 million.”
The decision was ill-timed. It came shortly after NYISO released another report, the 2024 Reliability Needs Assessment (RNA), which identified “a very concerning decline in state resource margins such that by 2034 no surplus power would remain without further resource development.”
The report cited “significant uncertainties” concerning growing demand and a “changing supply mix.” It specifically pointed to New York City as having a reliability need starting in 2033, driven by “gas plant retirements.”
The RNA noted the contribution to future peak demand created by electrification of the transportation and building sectors and by large, energy-intensive commercial projects, including data centers (see below) and chip fabrication.
Assemblywoman Didi Barrett, who chairs the Energy Committee, criticized the Governor’s decision, referring to the RNA’s “flagging reliability concerns due to our aging grid infrastructure and increased electrical demands.” Barrett, who, like Hochul, is a Democrat, added:
I have worked to introduce thoughtful and strategic legislation to help us reach our climate goals while ensuring both affordability and reliability. But if we are truly intent on decarbonizing our state while facing the many challenges ahead, we must all work together in a more open and transparent process.
In 2022, Hochul issued an executive order stating that “100 percent of the electricity used in State operations will come from renewable energy (as defined by the Clean Energy Standard) by 2030” and that “100 percent of light-duty non-emergency vehicle fleets will be Zero Emission Vehicles (ZEVs) by 2035 and 100 percent of medium and heavy-duty vehicle fleets will be ZEVs by 2040.” She also called for meeting building efficiency targets by 2025.
But, as E&E News reported on Dec. 16, “Hochul hasn’t followed through on a commitment to set new targets for reducing energy use in state buildings.” Her administration, at a state council meeting, “failed to take actions required under the governor’s signature 2022 executive order on energy. The lack of a new 2030 target comes as the state is unlikely to complete enough work to achieve the current 2025 goal.”
The renewable energy target for 2030 appears in jeopardy as well, with New York’s power plants aging and insufficient replacements in sight.
Conflicts Arise as AI Data Centers Attempt to Meet Electricity Needs Through Co-Location
In a Dec. 5 letter, Rep. Jay Obernolte (R-CA), co-chair of the House Bipartisan Task Force on Artificial Intelligence (AI), urged FERC to “support the development of data centers directly connected to power plants, citing national security and competition for global AI dominance,” Reuters reported.
The letter reflects concern that AI data centers, which use five to ten times as much electricity as traditional data centers, are putting pressure on utilities nationwide.
According to an October report by Bain & Co., data centers could account for 44% of U.S. electricity load growth from 2023 to 2028, compared with growth of about 27% from the residential sector, 17% from manufacturing and the remainder from the commercial sector.
The demand for new computing power has led technology companies to seek co-location as a means of getting electricity to data centers swiftly and easily, bypassing lengthy transmission lines and queues. But FERC has not fully embraced the idea.
As we reported in Issue No. 42 of this newsletter, FERC on Nov. 1 rejected a proposal by Talen Energy and PJM Interconnection to deploy 180 megawatts (MW) of nuclear generators in Pennsylvania to serve data centers directly. The vote was 2-1.
That proposal involved co-location with an Amazon Web Services data center. FERC was concerned that the ISA, or interconnection services agreement, would not adequately protect consumers against cost shifts.
“The possibility of a ballooning number of co-located data centers has raised questions about potentially higher power bills for everyday customers because the centers will use grid infrastructure and services paid for by the public,” Reuters reported.
Commissioners in the Talen/Amazon case questioned whether the co-located centers would use the broader grid for backup power and asked what would happen if the neighboring power plant unexpectedly went offline.
“Does the customer get to still draw power from the grid? Because if it does, that’s going to have a huge impact,” said Commissioner Mark Christie, a Republican appointee who opposed the deal. Also in opposition was Lindsay See, a Republican appointee who joined FERC in June. Two other commissioners did not vote.
FERC Chairman Willie Phillips, a Democratic appointee who voted in favor of the project, said, “I believe that the federal government, including this agency, should be doing the very best it can to nurture and foster [AI data center] development.” He added that he considered AI centers vital to national security and the U.S. economy.
In his letter, Rep. Obernolte asked FERC to move quickly in crafting rules that encourage the expansion of AI through co-location. “As their energy requirements increase,” he wrote, “the development of co-located energy production will be instrumental in mitigating grid strain, improving resilience, and reducing carbon emissions.”
The Congressman added:
As their energy requirements increase, the development of co-located energy production will be instrumental in mitigating grid strain, improving resilience, and reducing carbon emissions.
The issue of co-location is an especially vexing issue in markets that have attracted clusters of data centers, such as Northern Virginia. Many utilities find they haven’t been able to build out transmission infrastructure quickly enough, and there is concern that at some stage the utilities may be unable to generate sufficient power.
As we reported in Issue No. 41 of this newsletter, tech companies have explored several proposals for co-location, including a deal signed by Constellation Energy and Microsoft to “help resurrect a unit of the Three Mile Island nuclear plant in Pennsylvania in what would be the first-ever restart of its kind,” according to Reuters.
In addition, Amazon is “leading a $500 million funding round for X-Energy Reactor, a company that develops small modular nuclear reactors and fuel,” reported the Washington Post on Oct. 16.
“As part of the agreement,” said the Wall Street Journal, “Amazon and X-Energy will provide initial backing for a four-unit, 320-megawatt project with regional utility Energy Northwest in central Washington state.”
An important element in finding a solution to increasing demand for electricity is generating enough power with natural gas. Rep. Obernolte and Rep. Bruce Westerman (R-AR), the chairman of the Natural Resources Committee, as well as other colleagues on the panel, have already sponsored a series of six bills to increase domestic energy production, restart onshore and offshore lease sales, and require the timely issuance of permits to drill.
Texas Gets Ready for Extreme Winter Weather. Are Microgrids Part of the Answer?
Central Texas had its first freeze warning of the season on Dec. 10, reported Texas Public Radio, “and like every winter since 2021, many are wondering how the power grid will hold up to the weather. Ever since Winter Storm Uri left millions across Texas without power for days, the reliability of the Texas energy grid has been a topic of concern.”
That fierce winter storm in February 2021 “overwhelmed the Texas’ power grid,” said the Texas Tribune, and 246 people died in the worst natural disaster in the state’s history. An ice storm in January and February 2023 “led to widespread power outages” and paralyzed the state for days.
As the Federal Reserve Bank of Dallas noted:
Extreme weather events in Texas aren’t one offs. The largest state in the Lower 48 often runs the gamut of weather risks—tornadoes, derechos, floods, hurricanes and extreme heat and cold. The state recorded 210 outages in 2000–23, the most in the country, often at significant expense to power providers and to customers. The 2021 deep freeze cost $4.3 billion in initial expenses, while the 2024 wind events totaled an estimated $1.8 billion.
Now, Texas, like other parts of the country, is conducting winterization efforts to mitigate further weather threats. The Electric Reliability Council of Texas (ERCOT), which serves 90% of the state’s residents, has made changes to promote consistent natural gas supplies and power plant protections against freezing weather.
Reporter Moss Buchele of KUT News said that power plant components and supply lines were winterized that “so their components don’t freeze up…. They’ve also changed the market structure of the way that energy is bought and sold in the state so that there is more electricity in reserve in case the grid gets kind of tight.”
Reliability concerns have spurred what Dallas Fed called a “backup generation boom.” In an article on Dec. 6, the Fed reported that 302 “microgrids” were deployed in 2023, more than half of those in the nation as a whole. Said the piece:
As the name implies, a microgrid is a miniature electric grid, complete with interconnected loads, generators and sometimes even energy storage systems. Unlike a backup generator, a microgrid can be autonomous from the electric grid for most or even all of the time. Take-up of microgrids has been notable among Texas commercial entities.
Among those investing in microgrids are grocer H-E-B and retailer Buc-ee’s as well as the University of Texas at Austin, with a capacity of 146 MW. Microgrids are, overwhelmingly, fueled by natural gas, which provides 42% of the state’s electricity.
Other states where microgrids – ranging in cost from hundreds of thousands to many millions of dollars — have become popular are Alaska, California, Georgia, Maryland, New York and Oklahoma. Military bases are major microgrid users.
The Texas experience, in fact, points to the need for developing more natural gas and getting it to where it’s needed, as the new NERC report (see above) shows.
The report, said Snitchler of EPSA, “once again underscores the serious power supply challenges facing our nation, and the critical importance of securing enough electric generation capacity – specifically including critical dispatchable resources – to ensure reliability in winter months and throughout the year as energy demand rises.”
Jim Matheson, CEO of the National Rural Electric Cooperative Association, stated, “Demand for electricity is skyrocketing across America and supply is not keeping pace. And flawed public policies that focus on shutting down always available power generation are compounding this problem…. Smart energy policies that keep the lights on are more important than ever.”