October 29, 2018 / 6:49 AM / in 21 days

Australia's LNG Ltd delays U.S. project decision amid U.S.-China spat

MELBOURNE/SINGAPORE (Reuters) - LNG Ltd said on Monday it is delaying a final decision on whether to build its U.S.-based Magnolia liquefied natural gas plant, citing problems lining up Chinese customers due to the U.S.-China trade war.

FILE PHOTO: Liquified natural gas (LNG) storage tanks are seen at PetroChina's receiving terminal in Dalian, Liaoning province, China, July 16, 2018. REUTERS/Aizhu Chen/File Photo

The Australian-listed company is now targeting final approval for Magnolia, located in Louisiana, in the first part of 2019.

“We remain confident in our ability to reach (final investment decision) on Magnolia whether or not China participates,” LNG Ltd Chief Executive Officer Greg Vesey said in a tweet, noting “multiple opportunities with customers in Europe and Asia exist, and our discussions with them are proceeding well.”

Development of liquefied natural gas terminals to ship the super-cooled fuel around the world has soared due to rising demand, particularly out of Asia, as countries seek more cleaner-burning energy sources as a substitute for dirtier coal.

For graphic on expansion of global LNG gasification and regasification capacity click tmsnrt.rs/2mtY5CY

U.S. President Donald Trump has promoted the growth of U.S. LNG exports around the world as part of his efforts for global energy dominance, but the escalating trade dispute with China has harmed those plans.

LNG Ltd had planned to make a final investment decision by the end of 2018 about Magnolia, which is designed to produce 8 million tonnes of LNG per year.

“We made that statement prior to the trade tensions that have manifested over the past months, which have caused headwinds for LNG transactions,” Vesey said in a quarterly report.

China purchased about 103 bcf of LNG from the United States in 2017, or about 15 percent of all U.S. LNG shipped that year, but is on track to fall short of that level in 2018, according to Thomson Reuters vessel tracking and U.S. Department of Energy data.

LNG Ltd’s delay underscored how China, the world’s fastest-growing LNG market, has shifted its long-term LNG procurement strategies away from the United States in the last few months due in part to the trade dispute. That has had repercussions for the scale and pace for the next wave of U.S. projects, said Saul Kavonic, oil and gas researcher for Credit Suisse in Sydney.

“Regardless of how long the trade dispute lasts, the overall risk profile of U.S. LNG will remain heightened in Chinese LNG buyers’ eyes for some time to come,” Kavonic said.

LNG Ltd shares hit a one-year low on the day, before closing down 23 percent at 41.5 Australian cents.

The company is developing two plants: Magnolia, where it planned to begin exports in 2022, and Bear Head in Nova Scotia in Canada. Vesey told Reuters in May that the plans have “strictly been about marketing to China.”

But that was before Beijing imposed a 10 percent tariff on U.S. LNG as the trade war escalated. Washington has imposed tariffs across the spectrum on imported Chinese goods.

For graphic on growing global natural gas demand click tmsnrt.rs/2mtP90z

There are varying views on how and when the trade issues with China will be resolved, Vesey said on Monday.

“Considering that, our communications with potential Chinese offtakers remain robust with the intent to complete agreements if trade tensions abate before Magnolia is fully sold out,” he said.

The United States is on track to export over 1 trillion cubic feet of gas as LNG in 2018, making the country one of the world’s biggest exporters of the fuel. In 2017, the United States exported 706.4 billion cubic feet worth about $3.3 billion.

One billion cubic feet is enough to fuel about 5 million U.S. homes for a day.

“Like so many LNG projects around the world, Magnolia LNG has struggled to find long-term customers for its LNG,” Ira Joseph, head of global gas and power at S&P Global Platts in New York, said.

There are two LNG export terminals operating in the United States, with four more plants expected to enter service next year. Over two dozen U.S. LNG export projects are also in development, and at least ten companies have said they plan to make final decisions to build in the next two years.

“LNG demand is indeed growing strongly. However, the universe of proposed projects is many times the size of potential demand growth, so a majority of the proposed but currently unsanctioned projects will fail to reach (final investment decision,” said Bob Ineson, managing director North American natural gas at IHS Markit.

Reporting by Sonali Paul in Melbourne; Additional reporting by Jessica Jaganathan in Singapore and Scott DiSavino in New York; Editing by Richard Pullin, Christian Schmollinger and Jeffrey Benkoe

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