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US readies for 2nd wave of LNG export amid trade war with China


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US readies for 2nd wave of LNG export amid trade war with China

The U.S. is poised to continue growing its position as an LNG supplier, but even with government support for increasing energy exports, advances could be tempered by China's tariff retaliation in an escalating trade war.

Piecing together an infrastructure puzzle to connect booming onshore oil and natural gas production with export markets around the world, the pipeline buildout from the Permian and Williston basins is well underway, and the next piece is export facilities at the water's edge, mostly in Texas and Louisiana. A big question is whether the market will winnow the crowded field of projects enough to avoid an overbuild.

Expanded U.S. oil and gas export capacity will increase supply options for energy-hungry Asian markets, influence global price relationships such as shrinking the Brent/West Texas Intermediate oil spread, and change how Washington lawmakers conduct foreign policy.

As LNG infrastructure builds up in the Gulf, further constraints could arise, including a tight labor market in the region where other energy industries are booming; bottlenecks with vessel traffic in busy shipping channels; and the storms, floods and hurricanes in the region that can disrupt construction schedules and operations, said Akos Losz, a senior research associate at Columbia University's Center on Global Energy Policy.

Still, U.S. President Donald Trump maintains a positive view. He touted the U.S. role in global energy markets during a May 14 visit to the Cameron LNG export terminal in Louisiana as the newly operational facility gets ready to send cargoes into interconnected global markets.

"You are not only making our nation wealthier, but you are making America safer by building a future of American energy independence," Trump told attendees. "We are independent. We don't need anybody. We don't need anybody. And we don't need to be ripped off by the rest of the world either, because those days are over."

The president's visit also coincided with the Sempra Energy-led Cameron LNG becoming the fourth large-scale facility in the mainland United States to produce LNG. The first LNG production at the facility was a key development in the ramp-up of LNG production in the U.S., which is on track to become the third-largest exporter of the commodity in the world as new facilities come online. In the same week, the Federal Energy Regulatory Commission approved an application May 16 to expand the Freeport LNG export terminal under construction in Texas with a fourth train.

The May 16 development during FERC's monthly public meeting marked the commission's fourth authorization of an LNG project in 2019. "I am very bullish on the prospects of U.S. LNG exports," FERC Chairman Neil Chatterjee told reporters after the May 16 meeting. "I'm proud of the action that we've taken today, on a bipartisan basis again."

However, the promise of a surge of new U.S. LNG export development buoyed by Trump administration efforts to speed up permitting is threatened now that China has retaliated in an escalating trade war with the U.S. The risk was brought into focus May 13 when China raised tariffs on imports of LNG from the U.S. to 25% from 10%, effective June 1.

The action added to concerns that the protracted trade fight between the two large market players could shift the global supply-and-demand picture heading into the next decade, with China expected to become the biggest importer within a decade.

"China tariffs on U.S. LNG are definitely not a good thing for the U.S. LNG export business, either for existing projects or for future ones, as they will obviously raise the cost of LNG imports from the U.S. and, as a result, make them less competitive, particularly against other Atlantic Basin suppliers, such as Nigeria and Equatorial Guinea," said Madeline Jowdy, S&P Global Platts Analytics senior director for global gas and LNG.

S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.