It has become unclear how the US Trade Representative (USTR) could penalise terminals or shippers for not loading enough US LNG on US-built LNG carriers after the USTR scrapped the clause that terminals could lose their export licences if they fail to comply.
According to an initial USTR ruling in April, a certain percentage of US LNG exports should be shipped on US LNG carriers, rising from 1pc in 2028 to 15pc in 2047, or terminals would have their export licences removed. But amendments proposed the removal of the responsibility for LNG terminals to meet the requirements in June.
The threat to revoke export licences was the "most problematic" of the USTR's rules on LNG transit, the executive director of US industry body the Center for LNG, Charlie Riedl, told the Gulf Coast Energy Forum in New Orleans today. It was "more problematic" than former US president Joe Biden's pause on new non-free trade agreement (non-FTA) export licences because the USTR rules could be applied to projects in operation, while the non-FTA pause only delayed six projects that were yet to reach a final investment decision, Riedl said.
The modification to the rule "will avoid potential short-term disruptions to the LNG sector while promoting investments in US shipbuilding capacity and production of LNG vessels", the USTR said.
But it has become unclear how the USTR plans to enforce rules that aim to promote US LNG shipbuilding. The revised rules lack a port fee or tariff system that would encourage compliance.
The USTR expects that domestic demand for new LNG vessels will "result in the successful construction of LNG vessels in the US in the coming years, ensuring that US energy exports can be transported on US-built vessels".
But US LNG carriers are more expensive than those built in South Korea or China, and shipbuilding capacity is at present limited to the Philly shipyard, suggesting little room to accommodate further LNG carrier orders in the US.
