USTR trims penalty for LNG shipments from maritime restrictions

The US Trade Representative has scrapped a proposal to suspend LNG export licenses if operators fail to meet requirements for transporting a share of exports on US ships.

But US LNG producers remain concerned that requirements for US exporters to ship LNG on US-built ships are unworkable, potentially creating a hurdle higher than the year-long suspension of federal LNG export reviews in 2024 under the Biden administration, according to the LNG industry's leading trade group, the Center for Liquefied Natural Gas.

"This is more problematic than the pause," Charlie Riedl, executive director of the center, told attendees of the LDC Gas Forums' Gulf Coast Energy Forum in New Orleans Oct. 13.

The USTR announced Oct. 10 changes to the maritime restrictions first announced in March, targeting China's maritime influence and seeking to promote US shipbuilding.

Among the new tweaks, the USTR stripped out the most punitive aspect for LNG exporters —a provision that indicated the penalty for noncompliance could be suspension of the export license.

"This modification will avoid potential short-term disruptions to the LNG sector while promoting investments in US shipbuilding capacity and production of LNG [ships]," the USTR notice said.

The new version maintains the scheduled phase-in, proposed in June, without specifying the enforcement mechanism.

US-flagged and operated ships would still need to ship 1% of LNG exports starting in 2028. After that, the requirement for shipments to be on US-built, flagged, and operated ships would start at 1% in 2029, based on total exports for the prior calendar year. Then, the requirement ratchets up over time, climbing to 2% in April 2031 and continuing to rise as high as 15% in April 2047.

The LNG trade group has warned that it would be impossible for the industry to comply because no such ships that currently exist could meet the requirement, and the US also lacks shipyards that could build them before the mandate kicks in.

The Biden-era moratorium on export permits primarily affected a half dozen proposed US LNG projects, delaying developers' efforts to advance the projects to construction before President Donald Trump ended the permitting freeze. But the maritime restrictions would hit projects that are already exporting, Riedl said.

"We would not be able to get an LNG boat built in time to comply with this even at the long end of the runway that we're talking about," Riedl said. "It's going to take that long to tool up US shipyards."

US shipyards are not large enough to build LNG carriers, with the largest facing a backlog of military ships that are behind schedule, Riedl added.

The trade group described the USTR's removal of the provision for suspending LNG export licenses as a "welcome step in the right direction." However, it advocates for the complete removal of LNG tankers from the maritime restrictions.

The restrictions on LNG ships are inconsistent with the Trump administration's effort to grow US LNG exports, said Rick Smead, managing director of advisory services at RBN Energy, speaking on the panel in New Orleans.

"They have competing objectives with [Section] 301—'America First'—and we're going to dominate the world LNG—'America First,'" Smead said at the conference. "And it's hard to do both at the same time, unless you talk really fast."

The new requirements grew out of a broader investigation under Section 301 of the US Trade Act of 1974 of "China's targeting of the maritime, logistics, and shipbuilding sectors for dominance."

As part of the push, the US in April announced fees on Chinese ship operators and owners, and China rolled out retaliatory measures, including port fees on US-linked ships.

In addition to the change affecting LNG exports, USTR Oct. 10 proposed a carve-out from service fees for certain ethane and LPG carriers under long-term charter.

The USTR notice describes LNG exports as an important contributor to the US economy and says the agency will closely monitor the availability of the ships.

The agency promised to "promote the competitiveness and resiliency of the US LNG industry in a manner consistent with US policy goals, including through additional measures designed to support the expansion of the US shipbuilding sector," according to the notice.