US-China trade war ‘puts LNG deals on hold’
The US-China trade war has effectively frozen the prospect of long-term gas deals, LNG CEO Greg Vasey says.
The US-China trade war has effectively frozen the prospect of long-term LNG deals and is likely to blunt sentiment so long as the tariff spat persists, the Australian-listed developer of the $US5 billion ($7.3bn) Magnolia LNG project in Louisiana has said.
China, the world’s number one importer of the fuel, hiked the tariff on US LNG to 25 per cent effective June 1, from today’s 10 per cent rate, following President Donald Trump’s decision to levy US tariffs on an extra $US200 billion of goods.
Liquefied Natural Gas Limited said the decision had confounded its moves to sign up customers for the project.
“We will continue to negotiate and we will continue to work on things, but I would not expect anybody to execute deals with anyone until the President has agreed the trade war is over and we can move on,” LNG chief executive Greg Vesey told investors yesterday.
LNG Limited shares fell 1.3 per cent to 38c.
While US LNG accounted for just 7 per cent of total Chinese imports last year, analysts expect the major impact will be on a second wave of US export projects trying to secure financing to move projects to a final investment decision.
LNG plans to make a final investment decision on its 8 million tonne-a-year Magnolia export project in the second half of 2019 after initially targeting a call earlier this year.
The prospective gas exporter may need to raise additional capital should the LNG market remain weak.
“If this drags out there is the potential we would have to come back to the market for some cash,” Mr Vesey said.
“We want to be cognisant that this slow market could drag out for a while especially if the trade wars continue to hang over us”, he said, adding the group was hopeful the issue might be resolved in the next few months.
China is the fastest growing importer of LNG with demand forecast to spike to 95 million tonnes annually by 2025 from 53m tonnes last year, according to consultancy Rystad Energy.
That represents an obvious target market for the US, the world’s fastest growing exporter with predictions its LNG supplies will quadruple to 84 million tonnes a year by 2025.
The tariff blow and a fall in Asian LNG spot prices to three-year lows will hit investment decisions for a number of US exporters, Rystad says.
“Most of these projects need to secure long-term contracts in order to get financing for their development,” Rystad analyst Sindre Knutsson said.
China “will 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”.
Australian LNG producers may cash in by winning higher long-term contract prices with Beijing due to the ongoing tit-for-tat battle, consultancy Wood Mackenzie says. China takes in about a third of the nation’s gas exports, valued at nearly $17bn this year.
Any hit to US projects would propel Woodside’s efforts to sell volumes from its Pluto and Scarborough projects in Western Australia.