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    Trade War Puts US LNG Projects at Risk Warns Rystad

Summary

Large projects could struggle to secure financing due to China's growing influence over the global gas market.

by: Tim Gosling

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Trade War Puts US LNG Projects at Risk Warns Rystad

The ongoing US/China trade war could put several LNG projects awaiting final approval at risk, energy consultancy Rystad Energy warned May 15.

China announced May 13 that it will raise the tariff on imports of US LNG from 10% to 25%. The US raised tariffs on $200bn/yr of Chinese goods from 10% to 25% May 10, and reportedly plans to extend the regime to all other remaining imports.

Given China’s growing influence over global gas markets, that could jeopardise some of the large LNG export projects being developed in the US, Rystad worries.

China became the world’s largest net gas importer in 2018, and is the second-largest importer of LNG. Imports of the frozen fuel rose by over 40% year on year to around 54mn mt last year, and Beijing has said it plans to quadruple purchases over the next two decades.

However, with the 10% tariff attached, Chinese imports of US LNG fell by close to 80% year on year in the first quarter of 2019. Rystad forecasts China will become the world’s largest LNG importer in 2025, with demand set to reach 95mn mt/yr.

The US, meanwhile, has become the world’s fastest growing LNG exporter thanks to strong Asian and Chinese demand. Based on currently sanctioned projects, Rystad forecasts export volumes will nearly quadruple to 84mn mt/yr by 2025.

However, the consultancy worries that the raised tariffs will create additional headwinds for US LNG projects that are currently awaiting final investment decisions (FIDs). It suggests FIDs could be deferred on some of the largest projects should LNG prices continue to linger around their current low level.

“Most of these projects need to secure long-term contracts in order to get financing for their development. Rystad Energy expects China to be one of the biggest contributors in sponsoring new LNG projects over the coming years, and there will be a reluctance to signing new deals with US projects as long as this trade war persists,” said Rystad analyst Sindre Knutsson. “For example, Cheniere and Sinopec agreed late last year on a 20-year deal that would supply 2mn mt/yr of LNG to China starting in 2023. This deal could have been signed once the trade tensions were resolved, but due to the heightened tensions this has not happened,” he added.