Trade war jeopardizes forecast wave of LNG shipments

The escalation of the trade war between the United States and China jeopardizes the construction of several mega LNG projects, likely postponing the forecasted wave of project cargo shipments that are needed to build the new plants. 

China increased import duties on US liquefied natural gas from 10 to 25% last week in retaliation to president Donald Trump raising tariffs on USD 200 billion worth of Chinese goods.

The United States is the fastest growing exporter of LNG thanks to strong Asian and Chinese demand, but the latest Chinese countermeasures in the trade war with the US will create additional headwinds for US LNG projects that are currently awaiting final investments decisions (FID), warns consultancy firm Rystad Energy.

“Most of these projects need to secure long-term contracts in order to get financing for their development. Rystad Energy expects China to 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,” said Sindre Knutsson, Senior Analyst at Rystad Energy’s Gas Markets team. “For example, Cheniere and Sinopec agreed late last year on a 20-year deal that would supply 2 million tpa of LNG to China starting in 2023. This deal could have been signed once the trade tensions were resolved, but due to the heightened tensions this has not happened.”

Downer for shipping

Postponing of the final investments decisions would be a serious downer for both EPC-contractors and shipping companies, as analyst firm WoodMackenzie previously stated LNG could become “a major boon for EPC-contractors and other providers along the supply chain” thanks to the number of large investments, particularly in the US.  With tensions between the US and China rising, the multipurpose and heavy-lift shipping industry may have to wait a little longer for these projects to result in shipping contracts.

US exports

Once set to become one of the largest LNG importers of the World, the US is now actually a rapidly growing export of LNG thanks to the American shale gas revolution. Based on currently sanctioned projects,  Rystad Energy expects that US export volumes will nearly quadruple over the coming years, reaching 84 mtpa by 2025. China, on the other hand, is forecasted to almost double its imports in the next six years, reaching 95 mtpa in 2025.

In the short term, however, the new Chinese countermeasures will add significant additional pressure on the US LNG exports. Per Magnus Nysveen, Rystad Energy Head of Analysis, said: “US LNG export to China is already seriously affected by the 10% tariffs in effect from last year, and we expect it continue to be so as long as the tariff is imposed.”

The impact of the US-China trade war will be one of the key topics of the Project Cargo Summit, a two-day international conference about the transport of large and heavy cargoes, which is organised by Promedia Group on the 11th & 12th of September, 2019 in Rotterdam. For more information about this dedicated project cargo and heavy-lift event, please visit www.projectcargosummit.com.

Author: Tobias Pieffers

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