Edison, an investment research and advisory company, notes that the ongoing trade dispute between the United States and China could potentially delay the start of LNG Limited’s Magnolia LNG project in Louisiana.
Potential Chinese tariffs on US LNG and European concerns over the security of gas supply have the potential to alter forecast global gas flows materially, Edison Investment Research said in its report.
On August 3, China responded to Trump’s tariff threats by adding US LNG to a list of imports subject to a potential 25 percent tariff. While the market’s immediate response was to dismiss this new tariff threat, citing an impending LNG supply deficit and options to re-route molecules to other Asian economies, Edison believes there is a risk that the current tariff war of words will affect the pace at which new US liquefaction projects are sanctioned.
“Growing US LNG exports were expected to make a significant contribution in meeting flourishing Chinese gas demand. However, we believe Trump’s trade war and a retaliatory Chinese LNG tariff could see US molecules redirected to other Asian consumers and the European market, a market looking to develop alternatives to Russian piped gas supply,” it said.
It is difficult to quantify the precise impact of a potential tariff for US LNG on Liquefied Natural Gas Limited’s valuation. Fundamentally, the impact is likely to be small as Edison assumes fixed price tolling fee arrangements, but current rhetoric on tariffs is likely to be on the minds of project financiers and gas offtakers, potentially delaying project timelines.
For now, the advisory company maintains its valuation at A$1.01/share (US$3.18/ADR).
The Perth-based LNG Limited is developing the Magnolia LNG project in the Port of Lake Charles in Louisiana with a production capacity of eight mtpa.
The political impasse between the US and China could push back first gas from the current 2024 forecast for Magnolia LNG, the advisory said.
The imposition of trade tariffs on LNG is unlikely to faze IDG Energy (a 9.9 percent shareholder of LNGL) given its global multi-billion-dollar asset footprint but could affect LNGL’s ability to leverage this relationship in the Chinese market.
Edison notes that LNGL shares have performed strongly, up 90 percent over the last three months, reflecting positive commentary from the EU relating to US gas imports and an increasing acceptance of a potential LNG supply deficit beyond 2020.
Significant uncertainty remains with regard to the timeline for project delivery for LNGL. However, with our 60% chance of success currently applied to Magnolia LNG, there is the potential for a material increase in valuation once tolling agreements are signed and FID has been taken.