Trump trade spat muddies a U.S. gas exporter's talks with Asia

By Naureen S. Malik on 6/25/2018

NEW YORK (Bloomberg) -- The Trump administration’s trade dispute with China is delaying one U.S. company’s bid to sign long-term natural gas export deals.

While liquefied natural gas is excluded from the trade tariffs imposed in recent weeks, buyers are waiting to see whether the power-plant and heating fuel will be roped into the spat, said Greg Vesey, CEO of Liquefied Natural Gas Ltd.

The developer is in “advanced” discussions to sign 20-year deals for its $4.35-billion Magnolia LNG export project in Louisiana, but a number of parties have indicated they’re waiting to see how the tensions shake out before making final decisions, Vesey said in an interview in Washington on Monday.

“We’re kind of sitting back and waiting for this whole tariff and trade war thing to settle down,” for potential buyers, he said. “Has that affected the timing of their decision? Absolutely.”

The trade quagmire will likely be a topic of discussion at the World Gas Conference in Washington this week. While the Trump administration has promoted U.S. LNG as a way for China and other Asian countries to reduce trade imbalances, a recent threat to impose tariffs on steel imports could make U.S. export terminals more expensive.

Still, negotiations are ongoing for Magnolia. China and other Asian buyers may contract 50% to 70% of the proposed terminal’s capacity, with the ability to export 8 million tons per year of LNG, he said. Europe and the rest of the world would make up the rest.

Buyers are comfortable with pricing those long-term contracts to the U.S. Henry Hub benchmark in Louisiana, he said. That would be the equivalent of about 8% of Brent crude, a discount to the 11% or 11.5% cost that is being discussed in the global market these days, according to Vesey said.

Magnolia is fully permitted to export LNG and needs long-term contracts for a final investment decision, which Vesey hopes to make by the end of the year.

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