LNG Canada says China’s U.S. LNG import tariff could leave competing projects ‘dead in the water’

NAGOYA, Japan — LNG Canada challenged competing U.S. liquefied natural gas (LNG) projects on Monday, saying many could end up “dead in the water” as long as China keeps its tariff on U.S. imports of the fuel as part of the trade war between the countries.

China in September announced a 10 per cent tariff on U.S. LNG imports as part of an escalating trade war between the world’s two biggest economies.

This month, Royal Dutch Shell said it received a final investment decision (FID) for its US$31 billion LNG Canada project, which is expected to start exporting in 2025.

Speaking at an industry event in Nagoya on Monday, LNG Canada Chief Executive Andy Calitz said the FID “was irrespective” of Chinese tariffs on U.S. LNG, but added such measures would make U.S. LNG less competitive.

“The world has become so competitive that if we are to face a 10 per cent surcharge tariff on LNG, then as far as I’m concerned, you’re dead in the water. So I’m very happy to be in Canada,” he told Reuters.

Current U.S. LNG exports remain competitive despite the 10 per cent surcharge into China, as U.S. natural gas is cheap thanks to booming shale output, allowing exporters to offer LNG at competitive rates.

Once operational, LNG Canada will have the advantage of being closer to Asia’s North Asian consumer hubs than U.S. facilities, saving freight costs, while also avoiding fees for using the Panama Canal that current U.S. LNG exporters must pay since they are located on the Gulf of Mexico.

LNG Canada CEO Andy Calitz. Once operational, LNG Canada will have the advantage of being closer to Asia’s North Asian consumer hubs than U.S. facilities. Todd Korol for National Post

Several U.S. projects are still vying for financing and they must compete with rising output elsewhere, including from top producers Australia and Qatar.

Being competitive in China is key as it is the world’s fastest growing LNG import market.

Calitz said China would overtake Japan as the world’s biggest LNG importer “within the next 24 months.”

China’s natural gas consumption in 2017 rose 14.8 per cent from the previous year to 238.6 billion cubic meters, and is expected to reach 270 billion cubic meters in 2018 and 320 billion cubic meters in 2020, Guo Zhi, general economist at China’s National Energy Administration, said at the event.

© Thomson Reuters 2018

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