The booming U.S. LNG export industry likely faces construction delays in the short term and major market shifts in the long term—depending on the outcome of President Donald Trump’s tariff program, analysts said.

The White House’s increased levy on all foreign goods will broadly affect the U.S. economy. On April 16, Federal Chairman Jerome Powell warned that the program may increase the inflation rate and raise unemployment, according to a report from Barron’s.

A panel of analysts from Poten and Partners discussed the tariffs’ potential effects, specifically on the U.S. LNG market, during an April 16 webinar.

Trump implemented a baseline 10% tariff on April 5, after threatening and then giving a 90-day delay on far larger tariffs that are up for negotiation. Special 25% tariffs on autos, steel and aluminum remain in effect. The White House says that an effective 245% tariff is in place on China, with the East Asian nation and the U.S. engaged in an ongoing trade war.

“What we have now is the world's largest economy not trading at all with the world's second-largest economy,” said Jason Feer, Poten global head of business intelligence.

The international situation will take months to sort itself out and is difficult to predict because of the ongoing international negotiations. However, the steel and aluminum tariffs are already having an effect on LNG projects in the U.S.

Sergio Chapa, Poten senior LNG analyst for the Americas, noted that the typical liquefication fee price had been at about $2.50/MMBtu.

“The new, new normal is around $2.70 or even higher for shorter-term projects, and why is that? Because the inputs are higher—steel, aluminum, turbines, compressors,” Chapa said. “Even though some of this equipment is made by American companies, they’re made overseas, and their tariffs are due at the time of importation.”

Much of the raw materials come from China, and the construction costs of ongoing LNG projects could continue to rise and affect some of the long-term plans for the ongoing buildout of LNG facilities along the Gulf Coast.

“There are several pre-FID (final investment decision) projects here in the U.S., and a lot of them are going to have to renegotiate their EPC (engineering, procurement and construction) contracts with builders,” Chapa said. “One thing we're also hearing about in the market is that EPC contract validity, the amount of time that a contract's good for, is getting shorter and shorter.”

EPC contracts are sometimes signed prior to a company taking FID on an LNG project to make development progress while customers are still being lined up.

Chapa said the LNG sector has made some progress over the last couple of months, despite the tariffs, with several projects continuing to move forward. NextDecade’s Rio Grande LNG recently announced a long-term supply agreement.

“But overall that uncertainty reigns,” he said.

The uncertainty continues internationally, said Irwin Yeo, senior LNG analyst for the Asia Pacific region.

“One big question that many have, is that they're wondering if this is a temporary thing or is this the beginning of an extended or even permanent slide by the U.S. into trade protectionism,” Yeo said.

The reaction in Asia has been varied. On one side, China has engaged in a tit-for-tat game with the Trump administration. U.S. allies, such as Japan and South Korea, have been more restrained.

“These are countries whose responses are a bit more measured, you know, and they are all looking to negotiate with the U.S. for a way out of this,” he said.

The U.S.’ European allies are also focusing on negotiation, at least while Trump’s 90-day reprieve remains in effect, said Melanie Lovatt, senior financial advisor for Poten, who noted the EU trade commissioner was in Washington, D.C. immediately following the White House’s announcement.

The EU is in an uncertain position, not only because of tariffs, but because of the doubtful future of the conflict in Ukraine. A cessation of hostilities could open up Russian gas supplies at a time when natural gas storage levels on the continent are much lower than normal.

“I think you'll get a split with countries,” Lovatt said. “Some countries will want the security of keeping floating storage and regasification units and having a counter to Russian supply.

“Others would be willing to sort of turn on the taps again.”  

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