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US-China trade war looms large for LNG Limited

CEO says company sticking to project and game plan

Vancouver — LNG Limited shareholders expressed concern Tuesday that the Magnolia LNG export terminal developer will run out of money before advancing the Louisiana project to a final investment decision.

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While watching competitors sign deals of their own over the last year, the developer has been offering LNG at a relative bargain in an effort to secure its first long-term contract and revive enthusiasm in the LNG market about its prospects. But to date, it has not had any takers, blaming the US-China trade war and what CEO Greg Vesey described as a soft spot market for LNG.

During a conference call with investors arranged at the company's home base in Australia, held while an executive of the company was preparing to speak about a Canada project at an industry conference in British Columbia, Vesey said the company planned to stick with the US project and its current game plan.

"We are a bit frustrated, the board is a bit frustrated, and you our shareholders are frustrated," Vesey said. "The team is working as hard as possible to push us to success."

He said that if the lack of commercial activity "drags out," LNG Limited may have to raise cash from the market to fund ongoing operations. He did not say exactly how long the company's existing cash would last. Some investors on the call questioned LNG Limited's ability to raise money from the market as they said the company's stock price was very low. LNG Limited's US shares have been trading between $1 and $1.50 for months.

"That's why we stay on top of that," Vesey responded. "I think the biggest key we have talked about is the trade war. Anything can happen there."

Vesey did not provide any new guidance about when an FID for the Magnolia LNG project was expected. The operator already has a permit certificate from US regulators and a fully wrapped engineering, procurement and construction contract. What it does not have yet is any buyer of its LNG.

"If we can get that first customer signed, there is enough interest in us that we could gain some momentum," he said.

LNG Limited had previously planned to reach FID last year, but in October 2018 delayed that until this year amid China's imposition of a 10% tariff on imports of US LNG. Earlier this month, China raised that duty to 25% in retaliation for increased US tariffs on imports of Chinese goods.

During the call, Vesey insisted that the developer was not pinning all its hopes about advancing Magnolia LNG on contracts with Chinese counterparties, but he did say that he expected Asian customers to make up about two-thirds of the project's customer base. Yet, he offered a lukewarm assessment of near-term demand for contracts from the other two big importers in the region -- Japan and South Korea.

PRICE PITCH

At the LNG2019 conference in Shanghai in April, Vesey told S&P Global Platts that the developer was willing to take as little as $2.35/MMBtu and 113% of US Henry Hub to secure offtake agreements for its up to 8.8 million mt/year Magnolia LNG project.

The offering from the greenfield project, while still not drawing any takers, is quite competitive, even when compared with successful brownfield US Gulf Coast LNG export projects. Cheniere Energy sold initial capacity at Sabine Pass with liquefaction fees ranging over $2.25-$3/MMBtu and supply gas indexed to 115% of Henry Hub.

Besides Magnolia LNG, the company also has proposed an export terminal in eastern Canada called Bear Head LNG . The company had previously said it continues to market capacity there, primarily to major Western Canadian Sedimentary Basin gas producers.

-- Harry Weber, Harry.Weber@spglobal.com

-- Edited by Geetha Narayanasamy, newsdesk@spglobal.com

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