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LNG industry would get 'existential shock' from Trump steel tariff, experts say

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LNG industry would get 'existential shock' from Trump steel tariff, experts say

President Donald Trump's announcement that the U.S. will impose a 25% tariff on imported steel could have a huge impact on the domestic LNG industry, where proposed export projects with multibillion-dollar price tags could become uncompetitive if costs rise for a key material in liquefaction facilities and their supporting pipelines, experts warned.

Trump on March 1 said he intends to sign into law a 25% tariff on steel and 10% tariff on aluminum "for a long period of time."

The LNG industry railed against the planned tariff, which it said would hurt the viability of U.S. projects vying for a spot in the global market. Washington, D.C.,-based LNG Allies said in a letter to Trump that the U.S. "could easily lose out" on global market share as costs increase for already pricey export terminals. Another trade group, the Center for Liquefied Natural Gas, said it would be "unfortunate" if a steel tariff creates new barriers to LNG projects after the Trump administration took "meaningful steps" to streamline the federal regulatory process for natural gas infrastructure.

More than a dozen U.S. LNG terminals are waiting to join the six projects that will be online by 2020. Four of the projects in waiting are fully permitted but have not received a final investment decision, and 12 are seeking approval from the Federal Energy Regulatory Commission. But some of those developers just saw their chances slashed, consultants and analysts said.

"It's an existential shock to these projects if their costs are increasing," said Jamie McInerney, executive director of the Trade Leadership Coalition, an industry-funded nonprofit that promotes global trade. "There are a lot of LNG facilities that are at a critical stage now ... To increase the cost of key inputs to those projects frankly puts them at risk."

If the tariff becomes law, the engineering, procurement and construction contracts that lock in construction costs for proposed liquefaction projects will likely be reopened, said Ernie Megginson, an energy projects consultant and former vice president of development for the Magnolia LNG project. Because tolling fees for LNG buyers are often based on projects' estimated costs, long-term contracts that allow developers to receive financing may also be renegotiated, he said.

"The existing off-take agreements will likely be OK for the projects already under construction," said Megginson. "However, the projects that have not yet started construction will be in some trouble."

Megginson said U.S. export projects should still be attractive to international markets thanks to cheap U.S. shale supplies.

As part of an export-focused industry, U.S. LNG companies also risk fallout from the steel tariff on a more geopolitical level, said Kevin Book, managing director at ClearView Energy Partners and a veteran observer of Washington energy policy. While the Trump administration has touted U.S. LNG exports in its calls for "energy dominance," Book said actions that undermine America's status as a trusted trade partner could ultimately harm the industry.

"What's going to hurt 'energy dominance' is inhospitable conditions in receiving economies," Book said. "The Chinese have made it abundantly clear that this is not acceptable to them ... China is a big market for LNG. Maybe they won't look to buy more."