China's tariff on US natural gas delays Louisiana LNG project

Key Points
  • Australia's LNG Limited said it will not make a final investment decision this year on its natural gas export terminal in Louisiana due to problems lining up Chinese customers.
  • China slapped a 10 percent tariff on U.S. liquefied natural gas, retaliating against the Trump administration for taxing Chinese imports.
  • Terminal developers rely on contracts with buyers to finance their projects, and the tariffs make U.S. LNG less attractive to Chinese energy companies.
An LNG (liquified natural gas) container of CNPC (China National Petroleum Corporation) is under construction next to others at the Yangkou Port in Rudong county, Nantong city, east China's Jiangsu province.
Imaginechina | AP

A company behind a multibillion-dollar project to export liquefied natural gas from Louisiana is delaying its investment decision due to problems lining up Chinese buyers amid the ongoing U.S.-China trade dispute.

The announcement shows the trade tensions are beginning to have a negative impact on an industry that President Donald Trump has championed. Trump has pitched U.S. LNG — natural gas chilled to liquid form — to trade partners from China to Poland.

Australia's LNG Limited on Monday said it will not make a final investment decision this year on its Magnolia LNG terminal near Lake Charles, Louisiana. The company previously told investors it expected to announce a decision by year-end.

"We made that statement prior to the trade tensions that have manifested over the past months, which have caused headwinds for LNG transactions," LNG Limited CEO Greg Vesey said in a letter to shareholders. "We remain hopeful in our ability to bring a final investment decision for Magnolia LNG to the Board of Directors in the first part of 2019."

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China slapped a 10 percent tariff on American LNG exports in September after the Trump administration imposed an equal levy on $200 billion in Chinese goods. The White House is reportedly preparing to place tariffs on all remaining Chinese imports — about $257 billion in products — if trade talks between Trump and Chinese President Xi Jinping fail to deliver a breakthrough.

Vesey, a former natural gas and power executive at Chevron, held out hope that the world's two biggest economies would settle their dispute before Magnolia finds buyers beyond China for its supplies.

"There are varying opinions on how and when the trade issues with China will be resolved," he said. "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."

The Magnolia LNG project is estimated to cost $6 billion, according to energy and ship brokers Poten & Partners. LNG terminal developers secure financing for their projects by lining up buyers for their supplies.

China's LNG consumption is growing rapidly as Beijing aims to replace coal in the nation's energy mix, making the country a prime target for terminal developers looking to ink contracts. Analysts previously told CNBC that China's tariffs on U.S. LNG could delay some projects in the second wave of LNG terminals expected to start up in the coming years.