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Sino-U.S. Trade War Delays FID for Magnolia LNG to 2019

The Australian company interested in building a liquefied natural gas (LNG) export terminal adjacent to the Calcasieu Ship Channel in Lake Charles, LA, said it will delay a final investment decision (FID) until the first half of 2019, citing the ongoing Sino-U.S. trade war.

LNG Ltd. (LNGL) CEO Gregory Vesey said Monday while the company devoted much of 1Q2018 to signing long-term contracts for the project, trade tensions between China and the Trump administration had impacted those discussions. He said LNGL had originally planned to make a FID by the end of 2018, but conceded "we made that statement prior to the trade tensions that have manifested over the past months, which have caused headwinds for LNG transactions.

"We remain hopeful in our ability to bring a final investment decision for Magnolia LNG to the board of directors in the first part of 2019," Vesey said. The CEO said there were "varying opinions on how and when the trade issues with China will be resolved," and that LNGL's "communications with potential Chinese offtakers remain robust with the intent to complete agreements if trade tensions abate before Magnolia is fully sold out."

Subsidiary Magnolia LNG LLC is proposing to construct and operate up to four liquefaction trains, each with 2 million metric tons/year (mmty) of capacity. The terminal is permitted, with the Federal Energy Regulatory Commission order and trade agreements approval from the U.S. Department of Energy in 2016.

The trade war began last May, when the Trump administration imposed a 25% tariff on steel imported from China, as well as a 10% tariff on imported aluminum. The dispute has been escalating ever since, with both sides taking tit-for-tat measures. The White House announced tariffs on $200 billion worth of Chinese products in September, and China responded in kind with $60 billion worth of taxes on American goods, including a 10% tariff on U.S. LNG.

Analysts have since been divided over whether the trade war will dent the burgeoning U.S. LNG industry or have little effect, since project backers could find customers elsewhere.

"From a seller's perspective, the LNG market continues to improve with experts around the globe realizing the need for new LNG production by late 2022, when Magnolia LNG could begin operations," Vesey said. "Global LNG prices have remained high even in the shoulder season when prices typically decline. This trend indicates a continued increase in demand with additional supply needed even as some projects currently under construction will reach an operational state in the next 12 months."

Meridian LNG Holdings Corp. signed up for 2 mmty of tolling capacity from the terminal in 2015. The initial term of the agreement was 20 years, with an option to extend for an additional five. The agreement has been extended several times since, and Meridian and Magnolia agreed last month to extend the financial closing date of the offtake agreement to Dec. 31.

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