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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Texas LNG Reaches A Turning Point

LNG vessel

The proposed Texas LNG project is now closer to becoming a reality. Last week, the 4 million tonne per annum (mtpa) two train project slated to build at the port in Brownsville, Texas said it received from the Federal Energy Regulatory Commission (FERC) a timeline for Final Environmental Impact Statement (FEIA) and Federal Authorization Decision.

The FEIS and Federal Authorization Decision deadline are the final major steps in the FERC process before issuance of the FERC Order, the company said. Based on the FEIS date and timelines of other approved LNG export projects, Texas LNG expects to receive its Final FERC Order authorizing construction and operation of its facility in the second half of 2019.

The company said the development is an important milestone as it communicates the FERC’s high confidence schedule for Texas LNG’s completion of the National Environmental Policy Act process, and for all agencies involved in federal permitting approval to complete their review.

However, moving the project one step closer to final approval and construction comes at a dubious time for the U.S. LNG sector due to the ongoing trade dispute between Washington and Beijing. Amid President Donald Trump’s dogged termination to bring China to task over trade imbalances and a possible extra $200 billion worth of extra tariffs on Chinese exports to the U.S., China has vowed to fight back by threatening to impose a 25 percent tariff on U.S. LNG exports into China.

Such a move is arguably self-defeating for China and would complicate Beijing’s mandate to have natural gas make up at least 10 percent of its energy mix by 2020, with further earmarks by 2030. However, it also presents serious hurdles for fledgling U.S. LNG projects still in the planning or approval stage, like Texas LNG. Related: Emerging Market Contagion Threatens Oil Market

Many of these newer projects will need both Chinese funding as well as long term off-take agreements with Chinese firms to ever have a chance of being built. The seeming quandary for Texas LNG is that it has already signed five MoUs with Chinese entities to sell volumes from its two production rains in the future. While the company hasn’t yet disclosed which Chinese firms it reached deals with, Vivek Chandra, Texas LNG co-founder and CEO, told media in April on the sidelines of the LNG Asia Pacific Conference in Singapore that the Chinese customers are a mix of large provincials, independent companies and small local governments.

Convoluted outcome

Texas LNG has also singed non-binding MoUs with one firm in Europe and two in Southeast Asia. “In Southeast Asia, one is with one of the state national gas companies and the other one is more of an entrepreneurial project of developing an integrated gas to power scheme,” Chandra said. Of the eight firms, six of them either currently have LNG terminals or are in the process of setting up one.

How possible Chinese tariffs will impact the U.S. LNG sector depends on who you ask. Some, like Cheniere Energy have downplayed the development. Cheniere’s CEO Jack Fusco said recently that he did not expect proposed Chinese tariffs on U.S.-LNG to have an economic impact on the company’s existing contracts. Related: The Collapse Of Venezuela's Imaginary Oil Currency

“We don’t foresee an economic impact to Cheniere as it relates to our existing long-term contracts with PetroChina,” he said. In February, state-run CNPC inked a deal with Cheniere to buy around 1.2 mtpa of LNG beginning this year and running to 2043. Fusco added that he hoped the ongoing trade dispute could be resolved before the tariffs on American LNG were implemented.

Others, however, see more pain for the American LNG industry from possible Chinese tariffs on American LNG. China for its part has already started trimming its spot purchases of U.S.-sourced LNG.

When asked by OilPrice.com how possible Chinese tariffs on American LNG would impact the Texas LNG project, Chandra took the long view, downplaying their importance since production isn’t projected to come online for several years.

“At this point, we do not see any adverse reaction from our potential Chinese customers,” he said. “I think we are all hoping that this will blow over… and since our production is not until 2023, we will not see any immediate impact.”

By Tim Daiss for Oilprice.com

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