On 26th January, the United States (US) announced a pause on permits for new US liquefied natural gas (LNG) export facilities. The move sparked outcry among industry groups in Asia, which quickly declared the move would hurt the region’s energy security and climate goals. However, their concerns are unfounded for five simple reasons:
First, the decision does not affect US exports from existing or under-construction facilities. The US is currently the largest LNG exporter worldwide and has the most capacity under construction. Five projects are currently being built, which would nearly double US LNG exports this decade.
The US decision does not affect these projects and only applies to proposed facilities seeking export authorisations from the U.S. Department of Energy. Most of the impacted projects were in the very early stages of development, and none have secured contracts with customers for over 50 per cent of their capacity.
Second, there will be plenty of LNG to go around. The world is on pace for record increases in global LNG export capacity this decade, and the Institute for Energy Economics and Financial Analysis (IEEFA) anticipates that the incoming flood of supply is likely to result in a global glut. In 2026 alone, the world could see a 13 per cent increase in LNG supply capacity — the largest annual increase in history — much of it from the US and Qatar. The US permitting pause will do nothing to ease this glut or prevent already under-construction capacity from entering the market.
The flood of supply coming online also means that countries are unlikely to buy more Russian LNG because of the US decision. Historically, the largest competitors for US LNG in Asia have been Qatar, Australia, and Malaysia. These countries supplied 67 per cent of China’s LNG imports in 2023, compared to just 4 per cent from the US, and are likely to continue being the dominant suppliers to Asian markets. For example, Bangladesh finalised a 15-year deal to buy Qatari LNG just days after the US announcement.
Third, the US’s largest customers, Japan and South Korea, are set to dramatically reduce their LNG demand. In 2023, Japan’s LNG demand fell 8 per cent and has declined at an average rate of 3 per cent since 2014. IEEFA estimates that higher nuclear and renewable power generation could cause Japan’s LNG demand to fall by 27 million tons by 2030, nearly a third of its current imports. Many Japanese gas and power utilities have publicly acknowledged that they are likely to have excess LNG due to declining domestic demand. JERA, for example, has said it expects to divert supplies to other countries. Many Asian utilities have opened trading desks in Europe, hoping to trade more LNG rather than supply home markets.
South Korean LNG demand fell 4 per cent in 2023. The country’s climate and energy targets suggest LNG demand could fall 20 per cent by 2036, as LNG is displaced by increases in renewable energy. From 2021 to 2023, operating losses at Korea’s state-run power utility totaled over US$35 billion due to high LNG and other fossil fuel prices, adding financial impetus to reduce LNG dependence.
Fourth, LNG is just as harmful to the climate as coal. Arguments that the US decision will harm Asia’s climate goals are founded on the false narrative that LNG is cleaner than coal. In fact, methane — the main component of natural gas and LNG — is a significantly more powerful greenhouse gas than carbon dioxide. At leakage rates of just 0.2 per cent, natural gas can be as harmful to the climate as coal. In the US Permian basin, leakage rates may reach upwards of 9 per cent.
Moreover, natural gas is not meaningfully displacing coal in Asia. In China, for example, natural gas and coal demand have increased in lockstep, since the fuels perform separate functions in the energy mix. As a cheaper fuel source, China consumes coal in energy-intensive industries such as electricity, cement, and steel, whereas natural gas serves more specialized roles. Elsewhere in Asia, net-zero goals leave no room for unabated coal or LNG. Utilities like Tokyo Gas have recently allowed LNG supply deals to expire, recognising the need to decarbonise.
Fifth, the largest LNG buyers from new US projects are LNG traders, not end users in Asia. After Russia’s invasion of Ukraine, LNG traders made fortunes selling shipments to Europe. Since then, oil and gas majors and commodity traders have gobbled up LNG supplies from new projects and opened trading desks in target markets, hoping to maximise returns from LNG resales. In some cases, entire LNG export projects have been built solely based on purchase commitments from traders. In the US, estimates suggest that two-thirds of the export capacity already under construction will go to traders, not end buyers in Asia and Europe. These companies are effectively betting on their ability to resell LNG volumes at a markup over the long term.
In other words, it’s not Asia’s energy security and climate goals at risk from the US decision, it’s the global oil and gas industry’s unquenchable thirst for profit.
Sam Reynolds is a research lead, LNG/Gas, Asia, at the Institute for Energy Economics and Financial Analysis (IEEFA).
This commentary was first published on IEEFA’s website.
