Should U.S. Require U.S. Ships for LNG Exports? - Global Trade Magazine
  December 13th, 2015 | Written by

Should U.S. Require U.S. Ships for LNG Exports?

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  • In the next few years the United States is expected to change from a net importer of natural gas to a net exporter.
  • Five large-scale U.S. liquefaction facilities are under construction.
  • More than 30 companies have received approval from the U.S. Department of Energy to export LNG.
  • Building U.S. LNG ships would increase the cost of transporting LNG from the United States.”
  • Requiring U.S.-built ships for LNG exports could prompt LNG customers to get out of their contracts.
  • A reduction in the level of expected U.S. LNG exports could impact the broader U.S. economy.

Proponents of the U.S. shipbuilding and maritime industries have been lobbying for a proposal that would require U.S. exports of liquefied natural gas (LNG) be transported on U.S. build and flagged vessels. Congress is currently considering such a measure.

According to the United States Department of Energy (DOE), the U.S. is expected to change from a net importer of natural gas to a net exporter in the next few years, with those exports destined for different regions of the world, especially Asia. Five large-scale U.S. liquefaction facilities are under construction with a projected capacity to export more than 12 percent of U.S. natural gas production in 2020. More than 30 companies have received approval from the U.S. Department of Energy for largescale exports of U.S. LNG beginning in 2015 or 2016 via specialized LNG carriers.

A policy to require U.S. built and flags vessels, proponents argue, would create thousands of jobs for shipbuilders and mariners, and stimulate economic growth in shipbuilding centers.

The main problem with that proposal is that there are currently no, zero, U.S.-built LNG tankers in the world, the last one having been built around 1980.

Industry experts say it would require around 100 such vessels to carry U.S. LNG exports over the next number of years and that it would take 30 years to build out such a fleet. Furthermore, U.S. built vessels would cost two to three times similar ships built in Korea.

These are among the reasons why the conclusions of a recent report from the Government Accountability Office suggest that the benefits of stimulating the U.S. shipbuilding industry would be outweighed by the costs of such a policy.

But there’s more: According to the GAO, the increased costs of building U.S. LNG ships “would increase the cost of transporting LNG from the United States, decrease the competitiveness of U.S. LNG in the world market, and may, in turn, reduce demand for U.S. LNG.”

Implementing the proposed requirement may prompt LNG customers to attempt to modify, renegotiate, or terminate their existing contracts for liquefaction, which are typically the subject of 20-year supply contracts. The limited availability of U.S. carriers in the early years of construction could decrease the amount of LNG that could be exported from the U.S., leading customers to seek alternate sources.

Finally, concluded the GAO, “a reduction in the level of expected U.S. LNG exports could impact the broader U.S. economy, including potential job and profit losses in the oil and gas sector.”

Peter Buxbaum is web editor of Global Trade.


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