Next-wave LNG race hits hurdles

▶ American tariffs produce chilling effect

The delay of a US Gulf Coast liquefied natural gas (LNG) export project has crystallized fears that the US trade battle with China is hampering efforts to line up buyers needed to move ahead with multi-billion-dollar constructions.

The US is positioning itself as the dominant provider of the supercooled fuel as Asian nations shift away from dirtier power sources like coal, and October’s approval of a giant Canadian project led by Royal Dutch Shell bolstered enthusiasm for the sector overall in North America.

That optimism took a hit on Monday, when Australia’s LNG Ltd delayed a planned decision on whether to build its Louisiana-based Magnolia LNG plant until next year due to problems lining up Chinese customers. And it comes when bankers and analysts in the sector have already questioned whether the next wave of projects in the pipeline would pass muster with investors.

“Chinese LNG demand growth is the largest piece of demand growth out there, and Chinese buyers have got to feel reluctant to commit to the US capacity when the US government sees trade as a means of exerting political leverage,” said Bob Ineson, managing director of North American natural gas at IHS Markit.

China’s LNG demand has skyrocketed in recent years on the country’s pollution crackdown, with imports nearly tripling since 2015. In 2017, it overtook South Korea as the world’s No.2 importer of LNG.

With China leading the global LNG demand, signing deals with its companies is viewed as imperative to get larger projects done.

The US tariffs are having a chilling effect, according to two US industry sources. China is not signing any long-term deals with US 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.