By Ben Cahill

About the author: Ben Cahill is director for energy markets and policy at the Center for Energy and Environmental Systems Analysis, University of Texas at Austin. He is a regular contributor to Barron's .

Liquefied natural gas is central to President Donald Trump's "energy dominance" agenda, and he has signaled he may threaten tariffs to encourage buyers -- including U.S. allies -- to sign new deals. But tying LNG exports so closely with White House economic and geopolitical goals is a big departure from past practice, and it will worry buyers.

U.S. LNG exports grew organically as a byproduct of the shale revolution. Around the late 2000s, pioneers spotted an opportunity to leverage booming gas production by converting existing LNG import terminals to export facilities. This entrepreneurial spirit -- as well as extensive gas infrastructure and a liquid, transparent market -- created a new industry. From zero LNG exports at the start of 2016, the U.S. is now the world's largest producer, supplying about 21% of global LNG last year. In many ways, policymakers are still absorbing the geopolitical, market, and climate implications.

U.S. LNG reshaped the global market, but it wasn't size alone that mattered. Traditionally, LNG was sold in long-term, point-to-point contracts with oil-linked pricing. These long-term contracts reduced risk and unlocked financing for expensive liquefaction projects and gas infrastructure. Over time, the global LNG market became more fluid and interconnected. Companies such as BG Group (later acquired by Shell) began to supply customers from a global portfolio of sources, and buyers requested shorter-duration contracts with more flexible terms. U.S. LNG greatly accelerated this market evolution. Most U.S. cargoes are sold on a free on board basis, so buyers take title to the gas at the export terminal. And without destination restrictions, these cargoes can flow where they are most needed (or least where there is more willingness to pay).

The flexibility of U.S. LNG helps the market absorb shocks. When energy demand collapsed during Covid in 2020, many U.S. LNG cargoes were canceled. Buyers paid tolling fees to LNG plant owners rather than take likely unprofitable cargoes. At the other end of the spectrum, as European buyers rushed to diversify from Russian gas in 2021-2023, U.S. LNG volumes swung from Asia to Europe. Less dramatic examples abound. In recent weeks, LNG tankers have shifted from Asian to European destinations mid-journey as price differentials emerged. To be sure, European importers have paid handsomely to outbid other buyers. But in periods of market tightness, price signals have done their job of attracting more supply.

Surprisingly, until recently this industry saw few political interventions. U.S. LNG exporters signed deals with utilities, traders, industrial players, and oil-and-gas companies across the world, and barriers to transactions were mostly commercial, not geopolitical. Exporters complained of government red tape, as project promoters grappled with a complex, multilayered permitting process. And LNG was caught up in U.S.-China trade tensions during the first Trump administration, with China imposing tariffs on U.S. LNG in 2018 and issuing a waiver two years later. But to a remarkable degree, even exports to China were relatively unscathed. The invisible hand of the market shaped LNG flows, not government policy.

Perhaps a change was inevitable. LNG exports have contributed more than $400 billion to U.S. GDP, and LNG is a key source of jobs and revenue in Louisiana and Texas. Russia's war on Ukraine highlighted the industry's geopolitical significance. At the height of Europe's energy insecurity in April 2022, U.S. officials pledged additional export volumes to Europe. (In reality, market forces alone addressed this problem.) Eventually, the climate implications of U.S. LNG exports -- and the long life span of these fossil fuel projects -- attracted attention, leading to former President Joe Biden's yearlong pause on LNG project approvals.

Now, Trump is pressing countries to buy more U.S. LNG to avoid tariffs, including U.S. allies. European Commission President Ursula von der Leyen has entertained this idea, and Japan's prime minister offered some support as well on his recent trip to Washington. 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 don't sign 15 to 20-year deals on a whim. Governments may signal financial and political support, and some companies will no doubt be willing to sign nonbinding agreements. But the stars will have to align for firm contracts to emerge. Both European Union and Japanese buyers will be wary of suggestions that they should displace Russian LNG with U.S. gas. Cost and energy security considerations may discourage hasty decisions. And buyers are conscious of legal and policy risks in the U.S.

After the one-year pause on new project approvals, U.S. LNG sellers will welcome White House support, and they may be pleased that Trump is willing to act as matchmaker. Buyers may be less enthused that political forces are shaping LNG flows.

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February 25, 2025 10:13 ET (15:13 GMT)

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