US LNG developers seek tariff loophole in FTZs

• argusmedia.com Market: Natural gas  30/04/25

Construction costs for planned LNG projects could shoot up as a result of new import tariffs on key metals, writes Tray Swanson

US president Donald Trump's ultra-protectionist trade policies are pushing developers of LNG export projects to consider using foreign-trade zones (FTZs), in a bid to avoid or defer tariff bills on imported materials.

Trump's imposition of wide-ranging import tariffs this year raises the risk of cost inflation for LNG projects, particularly for the six terminals that are already under construction and the seven expected to reach a final investment decision (FID) this year. The 25pc levy on all foreign-sourced steel and aluminium introduced in March is likely to have the greatest impact on LNG projects, given that steel and aluminium can account for about 30pc of a facility's $5bn-25bn construction costs. Steel is required for liquefaction units, pipelines, tanks, structural frameworks and cryogenic hoses, and aluminum is used in heat exchangers.

Many LNG developers are seeking to reduce or defer paying the new duties by establishing foreign-trade zones (FTZs) — designated areas in which foreign inputs can avoid import tariffs, at least temporarily, if they fulfil certain criteria. FTZs were introduced in the US nearly a century ago to counteract domestic protectionist trade policy and help US companies remain internationally competitive.

US developer Cheniere's 33mn t/yr Sabine Pass plant in Louisiana has already been operating as an FTZ since 2015, according to the US FTZ Board. And Australian independent Woodside Energy's 16.5mn t/yr Louisiana LNG facility in Calcasieu Parish near Lake Charles is in an FTZ, a company spokesman told Argus. The project reached an FID on 29 April and is expected to cost $17.5bn, up from a weeks-old estimate of $16bn. About a quarter of Louisiana LNG's capital expenditure is for equipment and construction materials, roughly half of which will need to be imported so are subject to tariffs, Woodside chief executive Meg O'Neill told investors on 23 April.

Other planned projects in Louisiana are looking to establish or join FTZs. US developer Commonwealth LNG's proposed 9.5mn t/yr terminal in Cameron Parish is in the process of joining the same trade zone as Sabine Pass LNG and compatriot firm Venture Global's 12.4mn t/yr Calcasieu Pass facility. Midstream firm Energy Transfer's 16.5mn t/yr Lake Charles LNG facility has been approved by the US FTZ Board, although it has not been activated as an FTZ as no significant construction has taken place yet. The project is awaiting federal permits ahead of likely reaching an FID later this year. On the Texas side of the Sabine river, state-run QatarEnergy and ExxonMobil's 18.1mn t/yr Golden Pass facility, set to come on line in 2026, and US developer Sempra's 13.5mn t/yr Port Arthur LNG terminal, expected on line in 2027, have joined the southeast Texas FTZ.

Call of duties

FTZs are treated as though they are outside of US Customs territory for purposes of duty payments. This enables companies to defer or reduce tariff payments until the imported product is used commercially. For LNG projects in FTZs, developers do not need to pay tariffs on imported steel or modular liquefaction trains until the unit comes on line and begins producing LNG. Terminals with multiple trains can stagger the payments.

Most onshore project developers import materials and components and build their trains on site. Cheniere's Sabine Pass facility used this approach and required 89,000t of structural steel for its six trains. Port Arthur LNG and US firm NextDecade's 17.6mn t/yr Rio Grande LNG plant intend to do the same. But NextDecade is not active in the Port of Brownsville's FTZ, according to the FTZ Board, meaning it is probably the project at greatest immediate risk from the metals tariffs. By late February, NextDecade had secured only 69pc of the materials it needs for the project's first two trains and 33pc for its third train. NextDecade and the Port of Brownsville declined a request for comment.

Some projects choose to use smaller, prefabricated trains that are built elsewhere and imported. Venture Global took this approach for its Calcasieu Pass and 27.2mn t/yr Plaquemines plants, using imported trains built by oil field services provider Baker Hughes in Italy, and it intends to use the same technology for its proposed CP2 terminal, on track to reach an FID this year. Under such arrangements, the LNG developer must pay the US' import tariffs. Baker Hughes' customers take ownership of the products it makes in Italy, the company said on 23 April. Calcasieu Pass, which began commercial service on 15 April, is in an FTZ, but Venture Global will need to expand its boundaries to include the adjacent CP2 project.

FTZs also have a so-called inverted tariff benefit that allows companies to pay the duty on the finished unit if it is cheaper than the rate for the components. But Trump's executive orders outlining the tariffs essentially prevent the use of the inverted benefit, outlining a special status requirement that import duties be applied to the components, trade group the National Association of Foreign-Trade Zones' director of advocacy and strategic relations, Melissa Irmen, tells Argus. If the tariffs are lifted, firms that had deferred payments would still be required to pay the duties when they reach commercial service unless the order that removes or modifies the tariffs specifically dictates otherwise, Irmen says.