Can U.S. LNG Export Projects Fight Off Trade War Headwinds?
Zacks Investment Research | May 21, 2019 08:18AM ET
America’s escalating trade dispute with China has been weighing on sentiments across markets. On May 10, Washington raised tariffs on $200 billion worth of Chinese goods from 10% to 25%, while Beijing retaliated by imposing higher duties on a revised list of 5,140 U.S. goods worth $60 billion. Among others, China raised the tariff on imported liquefied natural gas (or LNG) to 25% from the prior level of 10%.
The deteriorating Sino-U.S. relationship in the form of several rounds of new tariffs (or tax on imports) is feared to be a major headwind for the massive U.S. LNG export projects as China is the second biggest importer of the fuel behind Japan.
Let’s look at the potential implications for LNG exports in light of the bitter and protracted trade dispute between two world’s largest economies. We also examine how this escalation of the tariff war will impact the future U.S. LNG projects and the billions of dollars poured into these plants, as well as the effects on Cheniere Energy, Inc. (NYSE:LNG) – the U.S.’s only listed LNG export pure play.
U.S. Companies Look to Take Advantage of Cheap Domestic Natural Gas
Driven by shale extraction, natural gas output in the United States have climbed to record levels.
The EIA forecasts that U.S. will produce 90.7 billion cubic feet a day (Bcf/d) of dry natural gas this year, up from the 2018 average of 83.4 Bcf/d - a record high for the second consecutive year. The agency also projected that domestic gas output would rise to an all-time high of 92 Bcf/d in 2020.
Soaring volumes are weighing on the outlook for prices. Meanwhile, companies like Cheniere Energy foresees the fundamentals of LNG to be favorable in the long run, considering the secular shift to the cleaner burning fuel for power generation worldwide and in the Asia-Pacific region in particular. With domestic prices remaining constrained on the back of abundant supplies, the company sees a big opportunity in selling U.S. natural gas production at higher prices overseas.
China: Major Driver of LNG Demand Growth
Per the Anglo-Dutch energy giant Royal Dutch Shell (LON:RDSa) plc’s (NYSE:D) Original post
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