The US LNG industry is concerned the Trump tariffs and a possible trade war with China could make American projects less attractive. Cheniere Energy photo.
Trump tariffs could curb new US LNG developments
According to a report by Reuters, the proposed Trump tariffs on steel and aluminum coupled with a possible trade war with China could have a negative impact on US LNG companies at a time when new developments in the industry were gaining steam.
China is making moves to switch from coal-fired electricity plants to natural gas, making it the fastest growing major buyer of LNG and and important customer for US producers. China also exports a significant amount of steel to the United States, some of which is used in LNG plant construction.
Analysts predict that by 2022, there could be a shortage of LNG and, as a result, LNG plant construction prospects have improved, according to company executives at the CWC LNG Americas Summit in Houston.
But, the Trump administration’s proposed steel tariffs could make US projects less attractive to its international rivals as project costs will rise due to the import tariffs that could be 25 per cent on steel and 10 per cent on aluminum.
“I think imposing steel tariffs at this juncture in the evolution of the second wave, right as we move into this very critical stage of the commercial process – locking in customer commitments – is a bad idea,” Patrick Hughes, vice president of corporate strategy with LNG developer NextDecade Corp told Reuters.
Hughes added that a backlash from steel-producing customer countries was “not insignificant” and add to the risks around increased costs.
On Thursday, President Trump announced new tariffs that target China’s high-tech sector, increasing trade tensions with China which quickly threatened to retaliate by hitting US agricultural exports.
According to Reuters, China is the world’s number 2 importer of LNG and it exports a number of steel components that are needed in LNG plants. These products are not made in the United States.
“I would say the overwhelming majority of steel in an LNG plant is pretty specialized,” Anatol Feygin, Cheniere Energy Inc’s chief commercial officer told Reuters. He added “Presumably things that cannot be sourced in the U.S. will not be subject to those (tariffs).”
The US Department of Commerce has said steel products not made in the US may be excluded from the Trump tariffs, but the details are not known at this time.
This year, Cheniere Energy signed two major sales deals, including one with China. The Houston-based company is now finalizing financing on its 4.5 million tonne per annum third liquefaction unit at its Corpus Christi project. This is the first new LNG project build to get the green light in the US since 2016.
The Cheniere project fired up many US producers optimistic about a new wave of development which could propel the US to the world’s top producer ahead of Qatar and Australia.
Expansion projects planned by Cheniere are not likely to be impacted by the Trump tariffs, but new projects requiring steel intensive infrastructure could face hurdles.
Earlier in March, energy executives speaking with Reuters said steel and aluminum tariffs could result in rising costs for shale and LNG projects by as much as 10 per cent.
“The industry is really close to laying the golden egg and this could potentially – kill it is probably too far – but it could be a real setback for the second wave of projects,” Charlie Riedl, Executive Director for the Center for Liquefied Natural Gas told Reuters.