Next-wave LNG race hits hurdles in U.S.-China trade war
30/10/2018 05:00
By Julie Gordon and Scott DiSavino
VANCOUVER/NEW YORK, Oct 30 (Reuters) - The delay of a U.S.
Gulf Coast liquefied natural gas (LNG) export project has
crystallized fears that the U.S. trade battle with China is
hampering efforts to line up buyers needed to move ahead with
multi-billion-dollar builds.
The United States is positioning itself as the dominant
provider of the supercooled fuel as Asian nations shift away
from dirtier power sources like coal, and this month's approval
of a giant Canadian project led by Royal Dutch Shell RDSa.AS
bolstered enthusiasm for the sector overall in North America.
That optimism took a hit on Monday, when Australia's LNG Ltd
LNG.AX delayed until next year a planned decision on whether
to build its Louisiana-based Magnolia LNG plant due to problems
lining up Chinese customers. And it comes when bankers and
analysts in the sector had already questioned whether the next
wave of projects in the pipeline would pass muster with
investors. urn:newsml:reuters.com:*:nL3N1X921N
"Chinese LNG demand growth is the largest piece of demand
growth out there, and Chinese buyers have got to feel reluctant
to commit to U.S. capacity when the U.S. government sees trade
as a means of exerting political leverage," said Bob Ineson,
managing director of North American natural gas at IHS Markit.
China set a 10 percent tariff on U.S. LNG imports last
month, extending a trade scuffle in which U.S. President Donald
Trump imposed tariffs on $250 billion worth of imported Chinese
goods and China retaliated with duties on $110 billion worth of
U.S. goods. urn:newsml:reuters.com:*:nL8N1W45L0
China's LNG demand has skyrocketed in recent years on
Beijing's pollution crackdown, with imports nearly tripling
since 2015. Last year it overtook South Korea as the world's No.
2 importer of LNG. urn:newsml:reuters.com:*:nL8N1OQ033
That boom, along with rising demand from other Asian
nations, has helped gobble up an anticipated LNG glut and
boosted spot prices to near four-year highs, breaking a
multi-year freeze on new project investment.
By the mid-2020s, global LNG demand is forecast to range
from 360 million to 450 million tonnes, up from about 290
million tonnes in 2017. With China leading that growth, signing
deals with its companies is viewed as imperative to get larger
projects done. urn:newsml:reuters.com:*:nL8N1WI71C
But the tariffs are having a chilling effect, according to
two U.S. industry sources. China is not signing any long-term
deals with U.S. projects until the spat is resolved, they said.
That's not good news when there are at least six other new
builds or expansions in North America on the cusp of a
construction decision, with a handful more eyeing go-aheads by
2020, representing more than $100 billion worth of potential
construction. urn:newsml:reuters.com:*:nL2N1X928C
The first wave of U.S. LNG projects was able to leverage
underutilized infrastructure and cheap gas to get a foothold in
what had been a closely held global market.
But second-wave newcomers like Tellurian Inc TELL.O ,
NextDecade Corp NEXT.O and Venture Global LNG face a range of
challenges from financing to contract pricing to pipeline
access, experts told Reuters.
With so many horses in the race, big builds backed by
established players or expansions of existing export facilities
will likely fare better than upstarts.
This favors energy giants like Shell, Exxon Mobil Corp
XOM.N and Qatar Petroleum, all of which have projects in the
works, along with Cheniere Energy LNG.A , the leading
independent U.S. LNG company.
Shell and its partners this month approved the C$40 billion
($31 billion) LNG Canada mega project, promising 14 million
tonnes per annum of new capacity before 2025, with the option to
double that output. urn:newsml:reuters.com:*:nL4N1WI1FF
"My instinct would tell me that the larger companies have
the resources and relationships to get these things approved,
because they're just enormous projects," said Charlie Cone, an
LNG analyst with energy data firm Genscape.
LNG Canada's chief executive, Andy Calitz, said last week
that U.S. rivals could end up "dead in the water" as long as
China keeps its tariff on U.S. imports. That could be a boon for
Canada's tiny Woodfibre LNG on the west coast and Pieridae
Energy Ltd's PEA.V Goldboro LNG on the east coast.
urn:newsml:reuters.com:*:nL3N1X22AB
Non-Chinese buyers are also cautious about long-term deals
due to changing trade policy, said IHS's Ineson. "This conflict
could lead to many developers of U.S.-based projects missing
this window," he said.
($1 = 1.3037 Canadian dollars)
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(Reporting by Julie Gordon in Vancouver and Scott DiSavino in
New York
Additional reporting by Jarrett Renshaw, David French and
Jessica Resnick-Ault in New York, and Gary McWilliams in Houston
Editing by Leslie Adler)
((julie.gordon@thomsonreuters.com; 778-374-3856; 604-396-7906;
Reuters Messaging: julie.gordon.thomsonreuters.com@reuters.net))