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The Biggest US LNG Exporter Is Claiming a Massive Tax Credit for Using Its Cargo as an ‘Alternative’ Fuel

July 31, 2025
in Fossil Fuels
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Liquefied natural gas vessels are fueled by their cargo—they’re built specifically to make use of the gas boiling off from their tanks.

But Cheniere Energy, the largest U.S. exporter of LNG, is seeking “alternative fuel” tax credits for that. The claim has baffled shipping experts, because what Cheniere Energy is doing isn’t, in any real sense, an alternative. It would also provide little climate benefit over fueling the vessels with diesel and seeks to use the credit in a way that tax specialists say was never intended. 

Yet if approved by the Internal Revenue Service, the claimed tax credits could yield a payout for the company exceeding $140 million, an Inside Climate News analysis found.

In its annual report filed with the U.S. Securities and Exchange Commission in February, Cheniere disclosed that it is “actively pursuing” alternative fuel tax credits for its use of LNG in its shipping vessels from 2018 to 2024, the year the tax credit expired. The IRS is reviewing those claims, the filing said.

The alternative fuel excise tax credit was signed into law by President George W. Bush in 2005. It was intended to incentivize the use of fuels other than gasoline and diesel—including biofuels, LNG and liquid fuels derived from coal—for use in motor vehicles, and it set no requirements for the relative cleanliness of these fuels.

Cheniere noted in its financial report that LNG is a cleaner-burning fuel than diesel or heavy-fuel oils and that the use of LNG was part of an ongoing effort to mitigate emissions from the company’s shipping operations. However, critics point out that fueling LNG tankers with diesel would be absurd, given that the gas continually boiling off from the refrigerated liquid cargo would have to be burned off anyway, or re-liquefied, if it wasn’t used for propulsion.

“It makes no sense not to use the fuel that you already have because of boil-off,” said Kirsten Sinclair Rosselot, an environmental performance analyst who runs the consultancy Process Profiles and was the lead author of a 2023 study that assessed fuel use and emissions from LNG vessels. “It’s not an alternative fuel.”

Cheniere declined repeated requests for comment from Inside Climate News. The American Petroleum Institute, a trade association representing the U.S. oil and gas industry, also declined to comment.

Cheniere’s eligibility for the tax credit may hinge on how the IRS interprets one word: motorboats. The statute states that tax credits can be claimed for the use of LNG and other alternative fuels “in a motor vehicle or motorboat.”

“It’s a very aggressive tax position,” William Henck, a former IRS tax attorney and agency whistleblower, said of Cheniere’s alternative fuel tax credit claim. “It just seems like they’re pushing the envelope here.”

The tax law doesn’t define what constitutes a motorboat. However, federal shipping regulations state it is a vessel no more than 65 feet long. LNG tankers typically extend nearly 1,000 feet. 

“They’re talking about a tanker,” Henck said. “Does that sound like a motorboat to you?”

If the IRS approves Cheniere’s claim, the company would be eligible for a 50-cent tax credit for each diesel gallon equivalent of fuel used. Cheniere declined to reveal the size of the tax credit it is claiming. However, according to calculations by Inside Climate News, it could exceed $140 million. 

“It just seems like they’re pushing the envelope here.”

— William Henck, former IRS tax attorney

From Jan. 1, 2018, to Dec. 31, 2024, Cheniere used company-chartered vessels to export LNG on more than 750 departures from its terminals in Sabine Pass, Louisiana, and Corpus Christi, Texas, according to shipping data from Kpler, a global trade analytics firm. The data was analyzed by Data Desk, which conducts investigative research on the oil and gas industry, and Inside Climate News. 

Adapting methods used for an earlier Inside Climate News investigation of emissions from LNG tankers, ICN calculated that those export journeys burned about 770,000 metric tons of LNG in the vessels’ main engines and generators. Applying the conversion factor approved for the tax credit, that corresponds to more than 280 million diesel gallons equivalent or a credit of roughly $140 million. These calculations do not include LNG used on the subsequent return journeys by the same vessels, which are fueled from a small quantity of the cargo retained for that purpose. If Cheniere is also claiming credits for these journey legs, the payout could nearly double.

ICN also calculated the total greenhouse gas emissions using LNG fuel, compared to a hypothetical situation in which ships were powered by the 280 million diesel gallons equivalent and simply flared the LNG boiling off from their cargo. Using LNG did reduce total carbon-dioxide equivalent emissions compared to the hypothetical diesel-fueled journeys, but only by about 12.5 percent. (LNG tankers have relatively high total emissions because of the methane that slips unburned through their engines.) 

Companies should only assume the effects of a tax position in their financial projections when there is a 50 percent or more likelihood that their claims will be sustained after the IRS weighs in, according to guidance by the Financial Accounting Standards Board, which sets accounting standards for companies, and accounting firm PwC.

Cheniere stated in its SEC filing that it hasn’t included the tax credits in its projections. The company added that “we believe we qualify and are entitled to claim such credits” but acknowledged “there is ongoing uncertainty regarding the final determination of our eligibility.”   

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Anthony Burke, a spokesperson for the IRS, declined to comment, stating that “by law, federal employees cannot disclose tax return information.”

Burke did not respond to follow-up questions about whether the IRS has received requests for guidance on the use of LNG in export vessels related to alternative fuel tax credits or whether the agency has provided such guidance to companies.

Lukas Shankar-Ross, deputy director of the climate and energy justice program at Friends of the Earth, said approval of the tax credit by the IRS would raise red flags.

“If the IRS decides that Cheniere’s globe-spanning charter vessels the length of a city block are equivalent to 65-foot motorboats, then the independence of the IRS is obviously in question,” said Shankar-Ross, who drew Cheniere’s claim to the attention of ICN.

Fuel tax credits have long been a focus of controversy. Henck’s whistleblowing involved a situation in which the IRS began approving alternative fuel tax credits to paper mills for their use of something called black liquor.

That byproduct from pulp manufacturing has been burned as fuel in paper mills for nearly a century. Adding in a small amount of diesel—as little as a few drops—qualified the blend for alternative fuel mixture credits that resulted in the use of more diesel, rather than less, and were ultimately worth $8 billion, according to The Washington Post.  

“It was aggressive enough that they got the credit in the first place,” said Henck, who at the time advised teams of IRS agents examining tax returns for larger companies. “But what went way over the line, and the reason why I spoke out, is they didn’t even have to report that stuff as taxable income.”

The IRS approved the paper mills’ tax refund amid lobbying by the paper companies. Shankar-Ross said he worries something similar may be happening now with Cheniere, whose claims may get a sympathetic hearing from the fossil-fuel friendly Trump administration.

Company CEO Jack Fusco attended a private meeting at Mar-a-Lago in April 2024, when then presidential candidate Donald Trump urged oil and gas executives to donate $1 billion to his campaign, according to reporting by The New York Times. Trump said the money would more than pay for itself in saved taxes and legal expenses, The Times reported.

Two months later, Fusco donated a total of nearly $500,000 to a Trump political action committee, and the Republican National Committee, according to Federal Election Commission data.  

“If Cheniere is looking for a return on investment in its very generous contribution to the Trump campaign, this is certainly an excellent opportunity,” Shankar-Ross said.

Shankar-Ross said he worries that if Cheniere receives tax credits for its use of LNG, others will follow. That happened with paper mills, Henck said.

“You can rest assured that if Cheniere gets approved, anyone else in the same situation will file refund claims,” Henck said. “I guarantee you that.”

Cheniere spent just over $1.7 million lobbying Congress and the administration with its in-house team in the first half of 2025, according to federal lobbying reports. Part of that sum was spent on lobbying the Treasury Department, of which the IRS is a part, and the Executive Office of the President on “tax issues impacting businesses and the LNG industry.”

Lobbying on tax credits, Henck has found, can make all the difference.

“I hate to say this, but the actual law or common sense has nothing to do with this,” Henck said.

“If they can get inside access, one-on-one meetings with the decision makers in the IRS national office, they can get this thing through.”

About This Story

Perhaps you noticed: This story, like all the news we publish, is free to read. That’s because Inside Climate News is a 501c3 nonprofit organization. We do not charge a subscription fee, lock our news behind a paywall, or clutter our website with ads. We make our news on climate and the environment freely available to you and anyone who wants it.

That’s not all. We also share our news for free with scores of other media organizations around the country. Many of them can’t afford to do environmental journalism of their own. We’ve built bureaus from coast to coast to report local stories, collaborate with local newsrooms and co-publish articles so that this vital work is shared as widely as possible.

Two of us launched ICN in 2007. Six years later we earned a Pulitzer Prize for National Reporting, and now we run the oldest and largest dedicated climate newsroom in the nation. We tell the story in all its complexity. We hold polluters accountable. We expose environmental injustice. We debunk misinformation. We scrutinize solutions and inspire action.

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Please take a moment to make a tax-deductible donation. Every one of them makes a difference.

Thank you,

Phil McKenna

Reporter, Boston

Phil McKenna is a Boston-based reporter for Inside Climate News. Before joining ICN in 2016, he was a freelance writer covering energy and the environment for publications including The New York Times, Smithsonian, Audubon and WIRED. Uprising, a story he wrote about gas leaks under U.S. cities, won the AAAS Kavli Science Journalism Award and the 2014 NASW Science in Society Award. Phil has a master’s degree in science writing from the Massachusetts Institute of Technology and was an Environmental Journalism Fellow at Middlebury College.

Peter AldhousPeter Aldhous

Peter Aldhous

Peter Aldhous is a science and data reporter based in San Francisco. He got his break in journalism in 1989 as a reporter for Nature in London, fresh from a Ph.D. in animal behavior. Later he worked as European correspondent for Science, news editor for New Scientist and chief news & features editor with Nature, before moving to California in 2005 to become New Scientist’s San Francisco bureau chief. From 2015 to 2022 he worked on the science desk at BuzzFeed News. Peter also teaches investigative and policy reporting, data visualization, and news features writing in the Science Communication Program at the University of California, Santa Cruz. He is a two-time winner in the Global Editors Network Data Journalism Awards. His reporting has also been honored by the Association of British Science Writers, the Association of Health Care Journalists, the Society of Environmental Journalists, and the Royal Statistical Society.

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