Let’s Talk About the LNG Carrier in the Room
Beginning in April 2029, the Office of the United States Trade Representative (USTR) will enforce a requirement that 1% of all liquified natural gas (LNG) exports from the U.S. be shipped aboard a U.S.-built LNG carrier. The U.S. hasn’t built an LNG carrier in nearly 50 years.
The USTR, in recognizing the extreme unlikelihood of a U.S. shipyard delivering an LNG carrier by 2029, will give companies a three-year waiver to the U.S.-built requirement so long as they place their orders for LNG carriers with U.S. shipyards.
Market sources estimate that, if a U.S. shipyard built an LNG carrier today, it would easily cost $1 billion. An LNG carrier built at a shipyard in South Korea today costs approximately $250 million.
So the question is: who in the LNG supply chain has to break out the checkbook to place the order with the U.S.?
LNG importers are free to source their cargoes from other exporting nations, such as Qatar and Australia (instead of the U.S.), to get the lowest delivered cost of LNG.
Independent shipping companies, focused on providing transport services at the lowest possible cost, will not voluntarily pay four times the cost for a vessel built in the U.S. (compared to what they could get from a proven shipyard in Asia).
This leaves the U.S. LNG exporters, who have invested tens of billions of dollars in building liquefaction export facilities.
The USTR restriction is measured against U.S. LNG exports as a whole, but there are multiple US LNG exporters including Cheniere Energy, Venture Global LNG, and Freeport LNG.
Now the game theory gets interesting.
As punishment for non-compliance, the USTR proposes suspending LNG export licenses–which could stop all LNG exporters from selling their products.
It’s unlikely that one LNG exporter will spring to order a U.S.-built vessel that will inadvertently satisfy the compliance requirements for everyone else.
The most logical outcome would be the formation of a single U.S. LNG shipping cooperative, composed of all LNG exporters, that would order U.S.-built LNG carriers to satisfy the requirement for the industry as a whole.
