LNG macro analysis, page-1350

As you would expect, GV & MH are banging the LNG.AX drum as noted in the following Reuters and Platts articles

REUTERS - US LNG developers see possible opening from US-China trade truce
NEW YORK - Companies proposing new U.S. liquefied natural gas export terminals expressed optimism on Monday the agreement between the United States and China temporarily halting the imposition of higher tariffs could help advance their projects.

U.S. President Donald Trump and Chinese President Xi Jinping agreed on Saturday to a 90-day freeze on new tariffs to advance trade talks, declaring a truce following months of escalating tensions.

The decision “is a positive sign that the development of U.S. LNG projects will not be detoured in the immediate term by any further trade conflicts,” said Micah Hirschfield, spokesman for Liquefied Natural Gas Ltd (LNG.AX), one of more than a dozen companies proposing new U.S.-based LNG export terminals.

The United States is the world’s fastest-growing exporter of LNG and China is the fastest-growing importer of the fuel. China bought about 15 percent of U.S. LNG exports in 2017, worth about $447 million. So far in 2018, China was on track to buy just 10 percent of U.S. LNG shipments.

Any cooling off of the trade war would help projects like LNG Ltd’s Magnolia project move to “execute long-term LNG export contracts with offtakers from China without punitive external factors,” Hirschfield said.

Alaska Gasline Development Corp, which expects in 2020 to make a final investment decision to build its $43 billion Alaska LNG project, was “gratified that trade talks appear to be progressing,” said spokesman Jesse Carlstrom.

The company has continued negotiations with customers in China and elsewhere in Asia despite trade frictions, he said.

Some LNG executives and analysts said, however, that advancing more LNG terminal proposals to construction would require a more formal agreement conducive to signing long-term sales contracts.

“The market needs something more concrete than a 90-day reprieve of hostilities to confidently commit time and capital for projects that take several years to bring online,” said Matt Hong, director of research, power and gas at Morningstar

While a pledge by China to increase purchases of U.S. energy products may lead to a short-term sales boost, the need for long-term purchase commitments has not gone away.

“The reality of the situation is that not much has changed as far as the LNG sector is concerned,” said Abhishek Kumar, a senior energy analyst at Interfax Energy’s Global Gas Analytics.

“Investors are now looking for a tangible progress in trade talks and not just political gestures,” Kumar said.
https://www.reuters.com/article/us-...from-u-s-china-trade-truce-idUSKBN1O22MB?il=0

PLATTS - Cooling Of US China trade tensions holds off higher tariffs on LNG
Houston — The move by the US and China to step back from another round of escalating tariffs lowers the likelihood that US LNG developers could see existing tariffs on exports to China rise to 25% early in the new year.

The US and China over the weekend agreed to resume trade negotiations and temporarily halt further tariff hikes. The US said it would hold off for a 90-day-period, starting at the beginning year, allowing negotiations on issues like forced technology transfer, intellectual property protection and agriculture.

The trade tensions and China's existing 10% tariffs on US LNG have been viewed as slowing completion of long-term contracts and investments for the second wave of US LNG projects. While some in the industry see a longer-term resolution as likely, an increase to 25% in the interim could have added to the drag.

The Chinese market is important because demand for LNG there is expected to reach 10.2 Bcf/d by 2024, more than double 2017 levels and accounting for roughly a third of global LNG demand growth between 2017 and 2024, according to S&P Global Platts Analytics. US LNG production is expected to grow to over 11 Bcf/d by 2024, a 9.3 Bcf/d (five-fold) increase over 2017 levels. The announcement followed the meeting of President Donald Trump and Chinese President Xi Jinping on the sidelines of the gathering of the Group of 20 industrialized nations in Buenos Aires over the weekend.

The US will not raise tariffs on $200 billion worth of Chinese goods to 25% from January 1 and will leave it at the current level of 10%, the White House said in a statement.

"China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries" the US statement said.

In the last round of tariffs effective September 24, the US imposed 10% tariffs on $200 billion worth of Chinese imports, and said this would rise to 25% on January 1.

This likely would have resulted in retaliatory tariffs, including China raising tariffs on US LNG imports to 25% from 10%, and new tariffs on US crude oil imports that have been exempted so far.

The decision to hold off was welcomed by some US LNG interests, even as uncertainties about the final outcome remained.

"This doesn't roll back existing tariffs, but it delays the increase," said Charlie Riedl of the Center for Liquefied Natural Gas, adding it creates a window of opportunity to get all of the tariffs lifted.

"We'll see what can be accomplished in 90 days," he added. "There's no doubt we've taken a big step back from the edge."

Josh Zive, a trade lawyer and senior principal with Bracewell, said "the hope is that some degree of cooling off will create the possibility" for good-faith negotiations. There are still three sets of existing tariffs between the two countries in place, he noted.

LNG Limited called the announcements a sign that US LNG projects will "not be detoured in the immediate term" by further trade conflicts. "This provides assurance that projects like Magnolia LNG will be able to execute long-term LNG export contracts with offtakers from China without punitive external factors," said company CEO Greg Vesey. In June, amid previous trade tensions, Vesey said an interested Chinese buyer was holding off completing a purchase agreement until there was greater certainty. (see comments below)

Others said talks are headed in the right direction, but continuing uncertainty over the long term will hamper progress. "These are large, long-term projects and these temporary issues will slow things down," said consultant Ernie Megginson of Megginson & Associates in an email. (Note: EM was heavily involved in leading MLNG's FERC process)

On November 11, China received its first LNG cargo from the US since it imposed a 10% retaliatory tariff on US LNG imports effective September 24.

The cargo was delivered to China's state-owned CNOOC at its Ningbo terminal, on board the LNG carrier Ribera Del Duero Knutsen, which lifted the cargo from the Cheniere Energy-operated Sabine Pass LNG export plant on the USGC on October 10.
https://www.spglobal.com/platts/en/...rade-tensions-holds-off-higher-tariffs-on-lng

FT - Many thorny issues remain unresolved and both sides offered different interpretations of the weekend agreement. Mr Trump wrote on Twitter that Beijing had agreed to cut tariffs on auto imports, though the Chinese government did not immediately confirm any change in duties. Meanwhile, Steven Mnuchin, the US Treasury secretary, has warned China to avoid “soft commitments” in the next round of trade talks.

As Beijing has agreed to many concessions, while Mr Trump has given up very little, the truce shows just who holds the upper hand. But as Lawrence Summers notes, the US can bluster all it wants, it still cannot hold China’s economy back.

Worth remembering that banks will only lend on credible, bankable offtake so "soft commitments" mentioned by Mnuchin won't be enough. The US wants definitive agreements to address trade imbalances whilst other more intractable problems are addressed and LNG project promoters will require bankable agreements.

I recall the WCJ article back in June which stated ... "The Friday night before the (WGC) June conference, executives at LNG Ltd hosted counterparts from a Chinese oil company to wrap up year long negotiatopoms to help finance an 8mtpa project in Louisiana.

But towards the end of the dinner in Houston, the Chinese executives made it clear they wouldn't sign until trade fears are resolved, LNG GV said in an interview.

"It's the fear of the unknown," GV said. "It puts a slowdown on everything."

Which reminds me of ... Not If, But When ...

And of all the greenfield projects in the second wave, there's only 1 fully permitted, with bankable EPC, $1.5bn equity funding committed … aka ... shovel ready. And when sanctioned, at peak 1,500 construction jobs and 190 full-time jobs will be created.

Tweet Mr President?!