U.S. LNG projects face increased risks and competition

U.S. liquefied natural gas (LNG) projects are facing increasing risks that could affect their long-term success. Tariffs, labor shortages, and unpredictable gas supplies are some of the challenges these projects encounter. Venture Global is investing heavily in its Plaquemines LNG facility in Louisiana, with more than $75 billion committed to U.S. projects. However, major investments typically require stable costs and predictable profits, which are now uncertain for proposed LNG facilities on the Gulf and East Coasts. One significant concern is the fluctuating cost of construction materials. Tariffs imposed by the Biden and Trump administrations on steel and other components could increase expenses for building LNG facilities. Additionally, finding skilled workers for these large projects is challenging. With many projects ongoing, the competition for labor is driving up wages and causing potential delays. The typical timeline for completing LNG projects is around five years, meaning that profitability must be predicted years in advance. There is uncertainty about global gas demand and supply between 2030 and 2045. The U.S. market is also volatile, unlike some international markets, leading to risks from hurricanes that could disrupt operations. Furthermore, the U.S. natural gas market relies heavily on associated gas production. If oil drilling decreases, natural gas output may drop sharply. This could force the government to impose limits on LNG exports to protect domestic energy needs, rather than allowing the market to dictate supply. Foreign buyers of U.S. LNG are wary of relying on a potentially unreliable supplier, and Canada is shifting some of its gas exports away from the U.S. to focus on Asian markets. Mexico is increasing its natural gas imports from the U.S. but is also developing its own LNG export projects, which could create more competition. Globally, U.S. LNG projects are facing intense competition from countries like Canada and Mexico, which are also pursuing LNG developments. Shorter shipping routes from these countries make them more competitive in Asian markets, especially with Gulf and East Coast projects that face hurricane risks and operational disruptions. Given these uncertainties, the proposed U.S. LNG expansions may contend with a tougher and more competitive market than expected. Investors must assess the risks of potential cost overruns, supply chain issues, and global competition. While LNG demand may remain strong in the short term, significant challenges lie ahead for these projects beyond 2030.