Trade war looming over LNG industry
WASHINGTON — With new liquefied natural gas facilities under development everywhere from Texas to Nigeria and demand for cleaner alternatives to coal power growing in countries around the globe, it would seem halcyon times in the natural gas industry. But a pall is hanging over the U.S. industry.
Heightening global trade tensions surrounding President Donald Trump’s “America First” economic agenda are making many nervous, at a time gas is set for a global expansion that stands to transform world energy markets.
Exxon Mobil CEO Darren Woods and Chevron CEO Michael Wirth, speaking together at the World Gas Conference in Washington on Tuesday, said tariffs on imported steel would raise costs on new projects and could potentially slow growth.
“In our country, I recognize the administration’s desire to support the domestic steel industry but they have also expressed a desire to support the energy sector. Those things need to be balanced out,” Wirth said. “These things run the risk of being a bit of a drag on growth.”
Woods, who succeeded Trump’s former secretary of state Rex Tillerson as Exxon CEO, echoed those comments, saying the tariffs “run the risk of making (energy) projects less competitive.”
“These are global businesses and free trade underpins our ability to compete,” he said. “We’re trying to keep a levelheaded voice in the
conversation.”
Since Trump announced in March he was imposing a 25 percent tariff on foreign steel and a 10 percent tariff on aluminum, in a bid to grow the domestic metals industry, fears of a global trade war have steadily intensified.
Asked Monday about the possibility of other countries imposing a tariff on U.S. LNG, Energy Secretary Rick Perry, who has defended Trump’s trade stance, said “I’m sure everything’s on the table.”
“These are high stakes negotiations,” he said. “The president of the United States is not apt to blink.”
For now, the impacts of the steel and metal tariffs, which raise construction costs on new gas facilities and pipelines, are expected to be relatively slight.
Fatih Birol, executive director of the International Energy Agency, said Tuesday he did not expect the tariffs to hurt LNG trade between countries.
“There are always trade disputes between the countries,” he said.
But the stakes are high for the oil and gas industry. Global LNG exports are projected to increase by 30 percent over the next five years, with the United States becoming the second largest exporter in the world, according to a report this week by the IEA.
Fueling the growth is a global push to reduce greenhouse gas emissions and air pollution, with gas viewed as a cleaner alternative to coal that partners well with wind and solar energy, acting as a fast-acting backup when the weather doesn’t cooperate.
“We believe a sizable gas backbone enables a deeper penetration of renewables,” said De La Rey Venter, executive vice president for gas ventures at Royal Dutch Shell. “For a long time to come gas will yield the lowest cost way to achieve a clean emissions grid.”
The shale boom has set up U.S. oil companies to be the beneficiary of that shift.
But the fear is that if relations between the United States and its trading partners continue to deteriorate, fears of a trade war could turn away many investors.
“The world economy is really growing for the first time in a decade or so,” Wirth said. “The risk of trade skirmishes and trade wars start to weigh on people’s perceptions.”