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Smooth sailing for LNG amid Biden’s pause, Trudeau’s hesitation, and Johnson’s political gamble?
If you thought America’s liquefied natural gas policy had nothing to do with Russia’s war in Ukraine, think again. LNG is all over the news right now, thanks to House Speaker Mike Johnson (R-LA) cooking up a plan to link the issues.
Meanwhile, north of the border, Canada is having its own LNG squabbles as the future of the multibillion-dollar industry is being debated. Tensions between the federal government, which is increasingly weary of fossil fuel mega-projects, and provincial governments keen on resource revenue, are shaping the debate.
And so are considerations about what’s happening down south. In January, the Biden administration suspended pending approvals of LNG exports to countries with which it doesn’t have a free trade agreement. It’s waiting on the Department of Energy to sort out what these exports mean in terms of costs to US consumers and climate impact. The pause came in no small part thanks to the efforts of climate change activists.
Observers suspect Trudeau can’t get too far from Biden on the issue, and cross-border climate activists used Biden’s more aggressive climate policies to try to box in Trudeau. In January, Biden’s LNG pause put Canada’s LNG export policy in the spotlight, pressuring the country to enact its own moratorium (which it hasn’t done) – especially if it hopes to meet its 2030 climate goals. Also, the LNG market is only so big and may be headed for a glut, so US projects or exports – or a lack thereof – shape Canadian calculations.
When the US suspended new LNG approvals in January, President Joe Biden was quick to point out that the pause wouldn’t affect existing exports to US allies in the “near term.” But in the long-term? A lot depends on the global market, geopolitical considerations, and domestic politics, including climate activist pressure on Biden – who faces a reelection battle in November.
Biden was nonetheless keen in January to make everyone aware the US remains the top LNG exporter and that the energy source wasn’t going to stop flowing overnight. In fact, the administration expects export capacity to more than double by 2028, and last year the country’s LNG project approvals were record-setting.
The trade authorization review is important because it calls into question how viable LNG projects and exports will be long term in a world in which climate policies are moving away from fossil fuels, which are facing increasing competition from renewables. But it may also be up for negotiation.
Biden wants desperately to get an aid bill through Congress to fund Ukraine’s defense efforts against Russia. The Senate has passed a bill, but it’s stalled in the House, where Johnson has held it up.
Facing pressure from his own party, who oppose the Ukraine aid package, Johnson – who is also fighting to retain his gavel – has dreamed up a trade that involves putting the aid bill to a vote and backing it in exchange for Biden reopening the LNG taps. Trouble is, that may not be enough for GOP hardliners, or at least not enough of them to get the thing passed, which would compromise not only the Ukraine aid deal but Johnson’s speakership and political career.
The plan wasn’t initially warmly embraced, particularly among the right-wing GOPers more focused on border policy than LNG. On the other side of the aisle, Democrats weren’t super enthusiastic about it either, and climate change activists and politicians are pressuring Biden to reject the deal. On Tuesday, Reuters reported that White House sources said the administration was open to the deal, pending a look at the full plan, but a White House spokesperson said the report was untrue and that President Joe Biden stands behind the pause. All of this back-and-forth and crossed wires suggests Johnson’s deal might be more of an opening bid than a final one.
Noah Daponte-Smith, a US analyst at Eurasia Group, says this is merely “the negotiating stage,” noting that whether the Ukraine package gets through Congress is another matter. Johnson is trapped between his own party and Democrats, both of whom he needs if the Ukraine bill has any chance of passing.
The Democrats want a clean bill – with no extra measures – which means they aren’t interested in LNG additions. Even Johnson isn’t “enormously committed” to LNG, according to Daponte-Smith, but the speaker is running out of options.
“I think he wants to hold on to the gavel and this is something convenient he can put forward to the Republican caucus,” he says.
The border deal is a non-starter for the Ukraine package, Daponte-Smithe says, given that former President Donald Trump has declared it dead.
And it’s not just the US squabbling over LNG.
Last week, Canadian Energy and Natural Resources Minister Jonathan Wilkison said the Liberal government wasn’t interested in funding future LNG projects. Beyond what’s already in the works, no more LNG projects will open in Canada unless the private sector is willing to go it alone. As of December, there were eight LNG projects in development worth over CA$100 billion, which includes the LNG Canada project, which Ottawa sank CA$275 million of public money into back in 2019, calling the project an investment “up to $40 billion” that “will lead to 10,000 middle-class jobs.” How times have changed.
Ottawa is turning its back despite Greece recently expressing interest in buying LNG from Canada – as have Japan and Germany. A few years ago, Prime Minister Justin Trudeau wasn’t convinced of the upsides to shipping LNG to Europe, and Wilkinson’s latest comments suggest the PM hasn’t changed his mind. Of course, just because there’s demand for Canadian LNG today doesn’t mean there will be tomorrow, and the IEA expects slower demand growth in the years to come.
LNG opponents suggest the future for the energy source is dim and are calling for Canada not to see any US slowdown on LNG as an opportunity to fill the gap. Since nuclear starts and restarts are on the rise in Asia, and renewables projects are soaring globally, the world faces a potential oversupply of gas.
Neither the US nor Canada are going to fully halt export and development anytime soon. But the fact that the Biden administration and Trudeau government are even the slightest bit weary of LNG projects is a major development in energy and climate policy.
A Japanese tanker anchored near an LNG plant on Russia's Sakhalin Island.
Japan’s red line on Russia
Since Russia invaded Ukraine in February, a lot of attention has focused on if, when, and how Europe might wean itself off of Russian energy flows to cripple Vladimir Putin’s war machine.
But there’s another major world economy that borders Russia, depends on Moscow to keep the power running, and faces tough choices because of its close ties to the US.
So far, Japan has largely moved in tandem with its US and European partners in supporting Kyiv and punishing Moscow. Tokyo has sent aid and military equipment to Ukraine, joined US and EU sanctions on major Russian banks, and outlawed exports of Japanese luxury items, cars, and high technology to the Russian market.
But sanctioning the Russian energy sector has been a more delicate issue. Ahead of an EU-Japan summit in Tokyo on Thursday, Japan pledged this week to phase out Russian oil “in principle” but offered no clear timetable.
And when it comes to Japanese investment in Russian energy projects, Tokyo has an even clearer answer about whether it will pull out: “no way.”
For Japan, the realities of being an energy-poor island nation bite. “The Japanese will frequently tell you: ‘our only natural resources are our people,’” says David Boling, a Japan expert at Eurasia Group.
The country buys almost 100% of its oil, gas, and coal from abroad, according to the IEA, making it more dependent on energy imports than any other major economy.
“Energy is a matter of life and death,” a top Japanese official recently told the Financial Times.
Although much of those resources come from the Middle East and Australia, Russia still plays an important role, supplying 11% of Japan’s coal, 8% of its natural gas, and 5% of its crude oil.
Complicating matters further, since the Fukushima disaster of 2011, Japan has largely shuttered its nuclear power stations. Even as public opinion slowly warms again to nuclear energy, high regulatory hurdles prevent a swift reopening of those plants.
And while Tokyo seems willing to drop Russian oil imports gradually, there is a bright red line around Japan’s own investment in Russian energy projects. Nowhere is that clearer than 30 miles off the northernmost coast of Japan, on the Russian island of Sakhalin.
For nearly 30 years, Japanese firms have held stakes in two major Russian oil and natural gas projects there. Investment in the Russian energy sector was seen as a way to reduce Japan's heavy reliance on Middle Eastern exporters -- which still supply close to 90% of Japan's oil -- and to further diversify its LNG imports.
Even when the Russian government strong-armed its way into Sakhalin 15 years ago, Japan stayed put. When Sakhalin-2 finally began producing LNG for Japan in 2009, then-Prime Minister Taro Aso described it as a “dream.”
There’s an economic reason that Japanese firms aren’t budging from Russia even as US and European majors head for the exit. At Sakhalin-2, Japan gets virtually all of its liquefied natural gas at agreed-upon long-term prices. Ditching the project would force Tokyo to buy that gas ad hoc on the global spot market, where prices have recently hit record highs.
But geopolitics are in the mix too. As Japan sees it, leaving Sakhalin would simply open the way for other, less scrupulous investors to move in while inflicting little economic pain on Russia. China is reportedly already eyeing the Sakhalin stake that the UK-based energy giant Shell announced it would sell in February.
In fact, far from slashing investment in Russia, Japanese firms are doubling down. The energy giant Mitsui, a Sakhalin investor, said last week it would press ahead with a separate $21 billion Russian LNG project in the Arctic that is scheduled to start producing by next year.
So far, polls show a strong majority of Japanese support Prime Minister Fumio Kishida’s handling of the Ukraine crisis. And even as a majority of the population worries about rising prices for food and energy — which the war is making worse — roughly 70% of those polled in mid-April said they approve of sanctions against Russia.
A separate study showed that close to 80% favor weaning Japan off Russian energy even if it causes prices to rise. It remains to be seen whether Tokyo will eventually move in that direction or continue to play things safe. With upper house elections approaching in July, Kishida may be wary of stoking inflation any further.
And to be fair, Japan’s swift reaction to Russia’s invasion contrasts with the more cautious approach Tokyo has taken toward US adversaries in the past.
For years, Tokyo maintained energy ties with Iran even as Washington sought to pressure Tehran over its nuclear program. And when Russia first swiped a chunk of Ukraine in 2014, the response from then-PM Shinzo Abe — who met with Putin more than 25 times during his time in power — was muted.
“The Japanese fear that this is the first episode in a TV series,” says Boling, “and that the second episode is going to be China.”