Foreign trade tension makes natural gas drillers anxious
WASHINGTON — Donald Trump has long been a doubleedged sword for Texas natural gas drillers.
As much as he and his administration cheer on the sector by loosening environmental regulations and speeding up permitting times for new LNG facilities, the industry depends on energy and industrial customers in foreign countries buying U.S. natural gas. And with Trump upending decades of global trade norms, commercial relationships are getting trickier by the day.
In response to Trump’s tariffs on $200 billion in Chinese goods, China announced this week its own penalties on U.S. goods, including a 10 percent tariff of U.S. LNG.
While not as much as the 25 percent tariff the Chinese threatened, it still represents a substantial blow to an industry for whom China was the second-largest customer over the past 12 months, according to the research firm Wood Mackenzie.
Analysts are not too worried yet, arguing that any immediate hit to LNG prices will be dulled by the Chinese having already bought most of the natural gas they needed for winter. But longer term, the picture is not so bright for U.S. LNG developers.
The Chinese tariff “restricts the target market for developers of new U.S. LNG projects trying to sign new long-term contracts,” Giles Farrer, research director at Wood Mackenzie, wrote in a note to investors Wednesday, though he added, “However, there is still plenty of appetite for second-wave U.S. LNG projects from other buyers in Asia and Europe.”
A similar risk is developing in Mexico, the largest buyer of U.S. natural gas. Mexico imported almost 1.8 trillion cubic feet last year through cross-border pipelines and LNG shipments.
While Trump has managed to smooth relations with President Enrique Peña Nieto, the populist Presidentelect Andrés Manuel López Obrador has shown a willingness to defy Trump, even writing a book about Mexican migrants living in the United States called “Listen Up, Trump.”
The possibility of the two outspoken leaders falling into a trade war similar to that developing with China has spooked some manufacturers in northern Mexico, who are putting expansion plans on hold as they wait to see what López Obrador does when he gets into office in December.
If the caution continues, a predicted boom in Mexican electricity generation could also be put on ice. That would be a blow to a U.S. natural gas sector that had expected to see exports to Mexico increase by close to 50 percent over the next three years, said David Goldwyn, chairman of the energy advisory group at the Atlantic Council, a Washington think tank.
Pipeline companies had built pipelines into Mexico at a fast clip in anticipation of rising demand there, with Energy Transfer Partners in Dallas completing its 148-mile Trans Pecos project and its 195-mile Comanche Trail project last year. The pipelines have a combined capacity of 2.5 billion cubic feet per day.
“The question is whether it is going to be empty pipes or not,” Goldwyn said.
“The question is whether it is going to be empty pipes or not.” David Goldwyn of the Atlantic Council