Australia's LNG Limited is delaying until next year its final investment decision for its Magnolia LNG export project in Louisiana as escalating trade tensions between the US and China affect its efforts to secure long-term contracts for capacity at the facility.
Monday's disclosure in a letter to shareholders from CEO Greg Vesey followed Vesey's comments in June at the World Gas Conference that an interested Chinese buyer was holding off completing a purchase agreement until there was greater certainty about tariffs that at the time were being threatened by Beijing. China later imposed a 10% tariff on imports of US LNG, starting in September.
While Cheniere Energy has said its two existing long-term deals with state-owned China National Petroleum's PetroChina unit are secure, developers of new export projects that have been counting on increasing Chinese demand for LNG boosting their efforts to advance to construction face challenges signing offtake contracts. That has prompted some to look more to end-users in Japan and South Korea, and traders in Europe.
"While trade issues with the Chinese market impact our discussions, our negotiations with customers in other parts of the world remain strong," Vesey said in the letter, posted on LNG Limited's website. "There are varying opinions on how and when the trade issues with China will be resolved. Considering that, our communications with potential Chinese offtakers remain robust with the intent to complete agreements if trade tensions abate before Magnolia is fully sold out."
In Monday trading on the Australian Securities Exchange, LNG Limited shares fell 23% to 42 cents, near the low end of their 52-week range of 39 cents to 88 cents. In New York trading, LNG Limited American Depository Receipts fell 16% to $1.32 on Monday afternoon. Magnolia LNG, an 8 million mt/year project, won approval from the US Federal Energy Regulatory Commission in April 2016, and since then it has vied, along with multiple US developers, to line up contracts and financing. Earlier this year, it had stated that its target was to make FID by the end of 2018. Vesey said in his letter that the developer now hopes to bring an FID to its board in "the first part of 2019."
To date, Magnolia LNG's only firm long-term offtake agreement is with investment fund-backed Meridian LNG Holdings. The deal, first signed in July 2015 and extended several times since, calls for the purchase of up to 2 million mt/year of LNG from Magnolia LNG.
Meridian LNG has said it planned to deliver the LNG produced in Louisiana to Port Meridian, its Hoegh LNG-operated floating regasification terminal in the UK with the gas delivered to E.ON Global Commodities, which became part of Germany's Uniper in 2016, under a 20year gas sales agreement. Magnolia LNG would provide liquefaction services in return for monthly capacity payments, while Meridian LNG would be responsible for procurement and delivery of feedgas to the liquefaction plant and for arranging shipping. The import facility also has yet to take an FID.
The agreement has certain conditions, including that FID on the Magnolia LNG project be reached by a certain time period. The latest extension of the financial closing date of the agreement runs to December 31.
OTHER OPTIONS
LNG Limited has options even if the Meridian deal was to fall through and if Chinese counterparties were unwilling to sign long-term agreements with the US project in the near-term, said a person familiar with talks between the developer and potential buyers.
"Multiple buyer opportunities with customers in Europe and Asia exist, and our discussions with them are proceeding well," Vesey said in a post on Twitter.
Besides Magnolia LNG, LNG Limited also has proposed an export terminal in Eastern Canada called Bear Head LNG. Vesey's letter said the developer is having "productive discussions with Western Canada resource holders" regarding feedgas supply for that proposed terminal.
