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US LNG companies lament bad timing of steel tariffs

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LNG Industry,

Reuters are reporting that the Trump administration’s planned steel tariffs and a potential trade battle with China could hurt US LNG companies just as a new wave of developments in the fast-growing market is gaining steam.

China is the fastest growing major buyer of LNG, making it an important customer for US producers. It is also a significant exporter of the steel components used in LNG plant construction.

With an LNG shortage looming as early as 2022, a rush of offtake deals with China and other buyers had been looking likely, boosting construction prospects, said company executives at the CWC LNG Americas Summit in Houston.

But the proposed steel tariffs, which will increase project costs and impact deal pricing, could make US. projects less attractive than international rivals.

“I think imposing steel tariffs at this juncture in the evolution of the second wave, right as we move into this very critical stage of the commercial process – locking in customer commitments – is a bad idea,” said Patrick Hughes, vice president of corporate strategy with LNG developer NextDecade Corp.

Hughes said the prospect of backlash from steel-producing customer countries was “not insignificant,” adding to the risks around increased costs.

US President Donald Trump amped up his trade battle with China on 22 March, announcing possible new tariffs targeting the country’s high-technology sector, following on from his decision to set general import tariffs of 25% on steel. China has already threatened to retaliate by hitting US agricultural exports.

China is the world’s second largest LNG importer. It also exports many of the specialised steel components needed in LNG plants, products that are not made in the US.

The US Department of Commerce has said there will be an exclusion process for steel products not made domestically, but many details are still unknown.

Cheniere signed two major sales deals this year before the tariffs were announced, including one with China, fully commercialising the third liquefaction unit at its Corpus Christi project in Texas.

The company is now finalising financing, which will take six to eight weeks, the final step before it can formally greenlight the 4.5 million tpy project, said Feygin. It will be the first new LNG build to go ahead in the US since 2016.

That had emboldened many would-be US producers, who were optimistic of their prospects of joining Cheniere in a second wave of development, with the potential to vault the US ahead of Qatar and Australia to become the world’s top producer.

The tariffs are not expected to meaningfully impact expansion projects planned by Cheniere and other first wave producers, but new entrants who need to build steel intensive infrastructure could now face harsher headwinds.

Energy executives told Reuters earlier this month that the steel and aluminium tariffs could increase the cost of big-ticket shale and LNG projects by as much as 10%.

More China-targeted tariffs would also slow deal-making between US producers and Chinese buyers, just as a new buying window had opened, said Charlie Riedl, Executive Director for the Centre for Liquefied Natural Gas.

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