Cost inflation was a concern for these projects prior to this week’s tariffs, said Ben Cahill, the director of energy markets and policy at the University of Texas at Austin’s Center for Energy and Environmental Systems Analysis. The previously announced 25% tariffs on steel and aluminum were already set to make building these projects more expensive, Cahill told me in an email.
Anne-Sophie Corbeau, a research scholar focused on natural gas at Columbia University’s Center on Global Energy Policy, noted that U.S. liquified natural gas companies were already trying to renegotiate contracts with buyers due to rising costs. “For the moment U.S. LNG is still interesting,” she said in an email, “but if costs increase too much, maybe people will start to wonder.”
The effect of the new round of global tariffs on these projects is much harder for experts to predict, and is changing by the day. Some countries may choose to increase their U.S. LNG imports to try to close their trade deficits and appease Trump. Morningstar analysts issued a note on Thursday predicting a favorable market for Venture Global, the developer behind Calcasieu Pass 2, as it’s looking for buyers, and “could offer the quick and easy victory both Trump and foreign leaders want.”
But the tariffs (not to mention the uncertainty about how long they’ll last) could also turn off potential buyers from signing long-term contracts with the U.S. They may begin to look elsewhere, or impose retaliatory tariffs, as China has already done.
China imposed 15% retaliatory tariffs on U.S. LNG back in February, in response to Trump’s first round of tariffs. Not a single tanker of U.S. LNG has gone to the country since then. Now the country has retaliated to this week’s escalation with an additional 34% tariff on U.S. goods.
That may sound bad for America’s LNG industry, but China is a relatively small buyer right now — only about 5% of U.S. exports went to China last year. That number is set to rise rapidly over the next few years, however, as Chinese companies have signed a number of long-term contracts with U.S. LNG projects that are about to come online. “In a few years from now, assuming nothing has changed and the volumes are growing, that will become more and more complicated,” Corbeau said. “That is very likely to force Chinese buyers to look elsewhere for new LNG contracts. I would bet that the Chinese companies will try to get out of the contracts with the U.S. LNG projects that have not taken [final investment decision] yet.”
Erica Downs, a senior research scholar focused on China at the Center on Global Energy Policy also noted that U.S. LNG developers may have been counting on additional financing for new projects coming from China. “I suspect that what's happening now with the trade war is going to mean that you're not going to see Chinese companies enthusiastic about investing in U.S. LNG projects — although who knows if the Trump administration even wants that,” she told me.
Nearly half of U.S. LNG exports went to Europe last year, and a third went to Asian countries. The biggest buyer was the Netherlands, followed by France, Japan, and South Korea. The U.K. and India were also major customers.
Leading up to this week, European leaders had suggested they were willing to buy more U.S. LNG if it would help avoid being slapped with tariffs by Trump. Clearly, that willingness to buy didn’t pay off. As Politicoreported, EU diplomats struggled even to begin talks with the Trump administration to work out a deal. They still could, but Corbeau pointed out in a LinkedIn post Friday morning that it would be tough for the EU — or any other country — to make up their trade deficit with the U.S. simply by boosting LNG imports.
It’s also unclear what leverage these leaders have, as EU governments mostly don’t have a financial stake in their energy companies and can’t tell them from whom to buy fuel. European utilities “may not be so keen to bow to political whims and contract U.S. LNG, or any LNG for that matter,” Corbeau wrote in a recent blog post. Gas consumption in the block is on track to decline, and upcoming environmental regulations on imported gas could rule out U.S. sourcing if Trump also makes good on his plans to repeal U.S. methane pollution regulations. “The EU needs U.S. LNG for the moment, but they may choose not to increase their exposure,” Corbeau told me.
Other countries may simply become wary of increasing their reliance on U.S. energy. “Nobody wants to have to rely on the trade relationship with Trump if this is how he's going to treat his trading partners,” Elan Sykes, the director of energy and climate policy at the Progressive Policy Institute told me. “The environmental and energy security considerations used to both favor the U.S.,” said Sykes. “Now one of them is somewhat unclear, and the president is actively destroying our country's export market value proposition.”
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