China Trade War Kneecaps US LNG

Without orders from the Chinese, gas companies can't convince banks their projects are viable

That the U.S. energy industry would be among those hardest hit by a full-blown trade war between Washington and Beijing was a no-brainer. Yet the extent of the fallout as the war continues is only becoming evident now, as some companies find it hard to secure the funding for their ambitious LNG projects.

According to the Bank of America Merrill Lynch, a number of companies may delay their final investment decisions on new LNG capacity to next year because of U.S.-Chinese trade tensions. Bloomberg reports these include Tellurian and NextDecade, as well as other companies focused exclusively on LNG.

“We see delays as likely given current pricing headwinds, no resolution yet on the U.S.-China trade war, and minimal contract announcements in recent months,” BofA analysts wrote in a recent note to clients, referring to Tellurian’s US$28-billion Driftwood LNG project in Louisiana.

While the companies themselves are not too talkative when it comes to possible obstacles to the so-called second wave of LNG projects in the U.S., the facts are not encouraging: China has imported no U.S. LNG since March, according to data from ClipperData. Bloomberg data is even gloomier: it suggests no U.S. LNG has made its way into China since February. No wonder, since Beijing first imposed a 10-percent tariff on the commodity and then upped this to 25 percent in retaliation for U.S. tariffs.

Yet there is another aspect of the trade war that is more damaging to U.S. LNG producers. To secure funding for these projects that typically cost billions, U.S. companies need long-term commitments to convince banks the projects are viable. Chinese buyers were the natural choice for these long-term commitments but this is no longer the case as Chinese investors shun U.S. projects amid the war.

To add insult to injury, the gas price context is increasingly unfavourable and could add justification to delays in final investment decisions. U.S. energy companies are producing too much gas at a time when domestic demand is stalling and global demand is being met by a growing number of countries. [Russia.] LNG projects are also suffering the effects of low gas prices. As RBC recently forecast, this year, the natural gas market will remain oversupplied, and this oversupply will extend into 2020 as well.

U.S. LNG exports were hailed as a double blessing: on the one hand, expanding U.S. companies global presence on the LNG market and on the other, relieving a persistent natural gas glut resulting from the growth of the shale oil and gas industry. The size of this relief grew from just 2.92 billion cu ft in 2013 to 1,083 billion cu ft last year. Now, its further growth that could turn the United States into the world’s top LNG exporter by 2024 is under threat.

Meanwhile, Big Oil majors, which are a lot more resilient to any single segment of the energy industry, are forging ahead with their own LNG projects outside the U.S. Mozambique is a hot spot and so is Papua New Guinea. They are adding capacity that would ultimately compete for market share with U.S. independents. That’s just one more headache-generating problem for these independents to deal with.

Source: OilPrice.com

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Mary E
3 months ago

In the meantime, back at the ranch….the trump administration is pushing its EPA and Interior Dept. to allow gas and oil extraction on America’s precious federal lands..which belong, by the way, to the American people,not the phony criminal so called president of the US…

David Bedford
David Bedford
3 months ago

Hillary Clinton was trying to export fracking throughout the world, they would have been better just limiting it to the US so the large supply didn’t decrease the price. oh well too bad too sad

Séamus Ó Néill
Séamus Ó Néill
3 months ago

The unsanctioned and free ( not invaded or embargoed ) countries of the world feel America’s pain…ok then, nobody gives two fecking hoots, you made your bed, you lie in it !

Alternate History
Alternate History
3 months ago

Midless exploitation of energy through fracking is not only ecologically and gelogically unsound , it also flies in the face of supply and demand in order to support enrgy sector companies. It is a recipe for disaster.

JustPassingThrough
JustPassingThrough
3 months ago

they can alwys sell it to Poland and Latvia.lol

Alternate History
Alternate History
3 months ago

Don’t forget the other Ball Tick states: Lithuania and Estonia. Thgey all suffer from Russophobia and cheaper Russian gas.

Pablo Rivera
Pablo Rivera
3 months ago

Don’t forget UKraine

Mary E
3 months ago
Reply to  Pablo Rivera

The US just can’t be satisfied with selling to its ex-allies/friends and the American people, they feel that they have to sell to the whole damn world..those greedy bastards are getting their comeuppance though, with the China trade war which is working against them on a daily basis…!!

Anti-Empire