Uncertainty looms over U.S. LNG, despite buyer interest

The U.S. LNG industry has seen some interest from overseas buyers in recent weeks, but commercial headwinds from the trade war, rising project costs, and weak demand are still weighing on the entire sector.

In mid-April, TotalEnergies agreed to purchase 1.5 million tonnes per year of LNG from NextDecade’s Rio Grande LNG Train 4. The first three trains are already under construction as part of Phase 1, and the deal on the fourth train provides some momentum for the proposed expansion as part of Phase 2.

On April 10th, Abu Dhabi’s Mubadala Energy signed a deal with asset management firm Kimmeridge to take a 24.1 percent stake in SoTex HoldCo LLC, a holding company that controls an upstream gas business in the Eagle Ford shale in South Texas as well as Commonwealth LNG, a proposed LNG export terminal in southwest Louisiana. The deal marks the first entry of the Abu Dhabi firm into the U.S. and it provides a commercial boost to Commonwealth LNG, which has been delayed for years but is hoping to announce a final investment decision later this year.

On April 17th, Uniper signed a sales and purchase agreement (SPA) with Louisiana LNG for 1 mtpa, one of the first SPAs from an end user of U.S. LNG in several quarters.

There is speculation that some more deals could be coming. GAIL India issued a tender in mid-April, soliciting bids from companies for GAIL to buy into LNG projects in the United States. GAIL is looking to buy up to a 26 percent stake in a U.S. project, and is looking for a 1-mtpa LNG off-take agreement for 15 years. That move comes as the Trump administration has been pressuring India to both lower its LNG import tax and to buy up more American LNG.

Less significant is the Energy Transfer and MidOcean Energy non-binding agreement that would see MidOcean paying for 30 percent of the cost of the Lake Charles LNG terminal in Louisiana. MidOcean would also take 30 percent of the LNG production from the site. 

While the uptick in commercial activity suggests a degree of ongoing interest in a new wave of U.S. LNG, most projects remain far from securing enough contracts to advance towards construction.

And unease in the sector is growing, with companies battered by rising construction costs, weak demand, long-term market uncertainty, and fraying relationships with much of the globe due to Trump’s trade war.

The turmoil is beginning to crop up in quarterly earnings calls with investors.

On April 23rd, Woodside Energy CEO Meg O’Neill said the company was “assessing the potential impacts of recent tariff announcements and potential further trade measures on Louisiana LNG.” Trump has imposed a 25 percent tariff on imported steel and aluminium, which is driving up the cost of construction.

“Around 25% of Louisiana LNG’s estimated capital expenditure is equipment and materials, approximately half of which is currently expected to be sourced from the U.S.,” she said.

“If energy prices come under further pressure as a result of tariff-related growth pressures, it could make things trickier for Woodside down the track,” Tim Waterer, chief market analyst at KCM Trade Global told Reuters.

Nevertheless, Woodside announced a final investment decision on Louisiana LNG on April 28th. “Louisiana LNG is a game-changer for Woodside, set to position our company as a global LNG powerhouse,” Woodside’s O’Neill told Bloomberg.

The project still needs to find buyers and sign long-term contracts for its volumes.

Global LNG trade

The headwinds are hitting an array of U.S. LNG projects that remain stuck on the drawing board. In the past, projects would charge roughly $2.25 to $2.50 per MMBtu as a liquefaction fee to buyers. But cost inflation is pushing up those rates.

“The new normal is around $2.70 or even higher for short-term projects,” Sergio Chapa, an LNG analyst at Poten & Partners, an LNG brokerage firm, said on a webinar in mid-April. The rising costs for steel, aluminum, turbines, and compressors are all pushing up project costs. And while LNG terminals in the U.S. are constructed on site, some of the equipment is manufactured overseas, subjecting those materials to Trump’s tariffs.

That, in turn, has pushed up the costs of EPC contracts – the cost that LNG developers pay engineering firms to design and build their terminals.

“A lot of them are going to have renegotiate their EPC contracts with builders,” Chapa said. He said another worrying sign for developers is that those EPC contracts are expiring much more quickly than they used to, a reflection of uncertainty and volatility in the market.

“EPC contract validity is getting shorter and shorter. Once upon a time you could get a six-month EPC contract and take your time,” Chapa said. “But now we are hearing that EPC validity has been shortened to as little as 30 days. The price is only good for 30 days before you have to go back and renegotiate the price.”

He noted that there has been some positive developments for LNG developers, with some modest deals taking place.

“But overall, uncertainty reigns,” he said.

Trade war

The trade war is casting a dark shadow over the global LNG market. In Europe, LNG is increasingly seen not as a solution to energy security, but as a source of insecurity. While the EU has offered to buy some more U.S. LNG cargoes as part of trade negotiations, dependence on the increasingly hostile government in Washington poses strategic risks to Europe.

The U.S.-China relationship is in much worse shape. China’s retaliatory tariffs have ended imports of LNG from the U.S.

And if the trade war drags on, even existing U.S.-China LNG contracts might need to be renegotiated.

The Trump administration has made LNG the centrepiece of its pressure campaign on trade, leaning on countries to buy more American energy in exchange for tariff relief. To some extent, countries are offering to buy more energy from the U.S., particularly in southeast Asia and Europe. But there is not much scope for large-scale purchases and there has been little evidence that long-term deals are imminent. 

As one industry analyst recently told E&E News, “I think we’re maybe nearing the limit on sort of U.S. LNG export capacity…limited by international demand.”

In the short run, the market does not look promising for LNG developers hoping to sign up buyers to contracts. China’s LNG demand is down 20 percent so far this year, compared to the same period in 2024. India just cancelled some LNG purchase tenders because prices were too high. Europe needs more LNG to restock depleted storage, but weak demand in Asia means that there will be available cargoes in 2025.

As a result, buyers are in no rush to secure more volumes for later this decade, which puts prospective LNG terminals on the U.S. Gulf Coast in a bind.

(Writing by Nick Cunningham; editing by Sophie Davies)