U.S.-China trade tensions could delay or jeopardize some proposed liquefied natural gas projects on the Gulf Coast by raising construction costs while reducing the competitiveness of U.S. LNG, analysts say.
China's announcement this week that it would slap a 25% tariff on U.S. liquefied natural gas comes as companies are poised to make final investment decisions on several Gulf Coast projects, including Cheniere Energy's (NYSEMKT:LNG) Sabine Pass Train 6, Tellurian's (NASDAQ:TELL) Driftwood LNG and Venture Global's Calcasieu Pass LNG.
"If you were thinking this escalating trade war is bad for growth... then you have to think your future scenarios for energy prices look a little darker than before," says Rice University's Peter Rodriguez. "It's terrible news for LNG projects under way - not that they won't finish, but I think their expectation is this is going to harm prices."
Rystad Energy expects China to be one of the biggest contributors in sponsoring new LNG projects over the coming years but sees a reluctance to signing new deals with U.S. projects as long as the trade war persists.
The 25% tariff will make non-U.S. LNG more attractive and give China more bargaining power when negotiating deals with U.S. producers, Rystad says.
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