October 31, 2018 / 8:22 PM / in 18 days

Texas LNG casts doubt over rival U.S. projects due to China risk

LONDON (Reuters) - The chief executive of Texas LNG, a U.S. liquefied natural gas (LNG) project, has cast doubts over his rivals’ plans to build export terminals because their proposed capacities would require a Chinese, or equally large, committed buyer.

However, Chinese LNG buyers are seen as unlikely to want to commit to U.S. LNG supplies after Beijing set a 10 percent tariff on the super-chilled fuel as part of an ongoing trade war between it and U.S. President Donald Trump.

Vivek Chandra said an anticipated push to make Final Investment Decisions (FIDs) on U.S. projects next year may also falter because buyers, whose commitments help finance projects, are still shy of coming forward in a fast-changing market.

An FID announced by Royal Dutch Shell earlier this month to build a huge LNG export terminal in Western Canada prompted expectations of more approvals in North America.

But Shell’s project will be financed by the company and its partners and is therefore less reliant on so-called offtake agreements.

“In the U.S., aside from Venture Global and a few little deals that Cheniere is doing, I don’t see a lot that is happening,” Chandra told a London LNG conference. “If the buyers don’t actually start making some decisions, we’re not going to see a lot of projects coming up.”

Venture Global has two LNG export projects in Louisiana, the Calcasieu Pass and Plaquemines, and recently finalised an offtake agreement with PGNiG, a Polish company.

Cheniere operates the first and largest U.S. export terminal.

“I don’t know what the buyers are waiting for because the golden opportunity to sign up for deals was yesterday,” Chandra said, referring to the steep spike in LNG prices over the past 12 months thanks to soaring Chinese demand.

POLITICAL RISK

Rising Chinese demand and growing U.S. gas production from shale had made large export terminal projects conceivable, but the trade war, even without China’s tariff on U.S. LNG, has now increased political risk around these plans.

Of the 13 U.S. projects that are planned but have not yet taken an FID, Chandra noted many had capacities of 10 million tonnes a year (mtpa) or above, a size that would warrant a large commitment from a single buyer, which translates to China in the current climate.

“All of these guys (project companies) really need big, big contracts — 3 to 4 million tonnes. They cannot manage with half a million here and there. You can’t have 30 or 40 customers,” Chandra said.

Australian-listed LNG Ltd earlier this week delayed its FID on the U.S.-based Magnolia projects until next year because of problems lining up Chinese customers.

Texas LNG plans a 4 mtpa export terminal and is able to take an FID once it has commitments for 2 mtpa. Chandra said that should happen next year, after final regulatory approvals for the projects as well as finalisation of offtake agreements.

FIDs on LNG projects tend to be taken once a project owner has commitments from buyers to offtake a certain amount of the LNG, usually over 75 percent, if not more. Each LNG facility, or train, tends to have only a handful of such buyers.

Reporting by Sabina Zawadzki; Editing by Kirsten Donovan

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