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Magnolia LNG developer under pressure to explain delay, expert says

Australia's LNG Ltd., which put off a final investment decision for its proposed Magnolia LNG terminal on the U.S. Gulf Coast, has more incentive to point to a U.S.-China trade dispute as the reason behind the delay than would other developers of U.S. LNG projects, an industry observer said.

LNG Ltd. is in a different boat, said Ernie Megginson, president of the energy projects consulting firm Megginson & Associates Inc. and former vice president of development for Magnolia LNG LLC. Among more than a dozen proposed second-wave U.S. LNG terminals, Magnolia LNG stands out because the project has held the U.S. federal regulatory approvals to build since 2016. The facility, near Lake Charles, La., would be capable of producing about 8 million tonnes per annum of LNG.

"There are no excuses for LNG Ltd.," Megginson said in an interview. "They can't hide behind [regulatory delays]."

The disclosure of the Magnolia LNG delay in an Oct. 29 quarterly report to LNG Ltd. shareholders cited trade tensions between Washington and Beijing. China imposed a 10% tariff on American LNG in late September, responding to U.S. tariffs. LNG Ltd. now hopes to reach a final investment decision in the first part of 2019. Before the report, the company had planned to reach the milestone by the end of 2018.

After the disclosure, the head of LNG Ltd. said the company will be able to reach a final investment decision on Magnolia LNG even though it needs more time to line up long-term buyers. "We remain confident in our ability to reach [a final investment decision] on Magnolia LNG whether or not China participates," Managing Director and CEO Greg Vesey tweeted. "Multiple buyer opportunities with customers in Europe and Asia exist, and our discussions with them are proceeding well."

Company officials declined further public comment ahead of a Nov. 15 annual shareholders meeting in Australia.

Shares on the Australian Securities Exchange of LNG Ltd. fell 23% on Oct. 29.

LNG Ltd. has long courted counterparties in China, seen as a key market for American LNG, because of the country's surging demand. But Vesey had said as recently as June that at least one Chinese buyer did not want to make a final decision because of trade-related uncertainty. No American LNG company has announced an off-take agreement with a Chinese counterparty since China imposed the tariff.

While experts have warned that second-generation U.S. LNG terminals need to be sanctioned soon to meet a global supply shortfall forecast to develop by the mid-2020s, the terminals faced obstacles even before the U.S.-China trade dispute. Observers have said those include a short-term supply glut, a crowded field of export hopefuls, and a push from buyers for shorter and more flexible contracts rather than the long-term deals that have traditionally grounded financing for the multibillion-dollar projects.

"Right now, the world doesn't need more LNG," said Jacques Rousseau, managing director of oil and gas fundamentals at ClearView Energy Partners. "So these projects are already having a difficult time getting to final investment decision before this China issue."