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USTR rules on LNG shipments surprised industry

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Rules go against Trump vow to support US energy dominance

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Rules would disadvantage US LNG exporters in global market

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Industry says dearth of US shipbuilding makes compliance

difficult

By Lisa Baertlein and Jarrett Renshaw

LOS ANGELES/WASHINGTON, May 7 (Reuters) - U.S. energy

groups are asking President Donald Trump's administration to

exempt liquefied natural gas tankers from a new rule that will

require producers to move an increasing percentage of their

exports on U.S.-built vessels as part of a broader push to

revive domestic shipbuilding.

The U.S. is the world's No. 1 LNG exporter at $34 billion

annually and the Trump administration has been a supporter of

the industry in his push for energy dominance.

In a move that shocked the industry, the U.S. Trade

Representative (USTR) announced April 17 that LNG producers

would have to transport 1% of their exports on U.S.-built ships

starting in April 2029. That percentage would escalate to 15% in

April 2047 and beyond.

That could put the U.S. LNG industry at a disadvantage to

its peers around the world because there aren't enough

U.S.-built ships to meet the requirement, the American Petroleum

Institute (API) said in an April 23 letter to U.S. Energy

Secretary Chris Wright and National Energy Dominance Council

Chair Doug Burgum seen by Reuters. Burgum is also U.S. Interior

Secretary.

It "risks counteracting the significant progress the Trump

Administration has made towards reducing uncertainty and

unleashing U.S. LNG," API CEO Mike Sommers wrote in that letter.

API counts as members some of the world's largest energy

companies, such as Exxon Mobil ( XOM ), Chevron ( CVX ) and

Cheniere Energy.

Individual exporters that do not comply could lose their

export licenses, even though the percentages apply to the

overall industry and to ships that exporters do not own or

control, industry groups warned.

"They have little control over their ability to comply with

USTR's new requirements but ultimately face the consequences of

not doing so," Sommers said in the letter.

"We will continue working with USTR and the Department of

Energy in support of feasible and durable policies that benefit

consumers and advance American energy dominance," Aaron Padilla,

API's vice president of corporate policy, told Reuters in a

statement late on Tuesday.

Representatives from the USTR and White House press office

did not immediately respond to requests for comment. USTR

proposed the rules as part of a larger effort to counter China's

growing commercial and military dominance on the high seas.

There are now 792 LNG carriers in operation globally,

according to shipping consultancy AXSMarine.

LNG ships from South Korea and Japan dominate that group

with 703 combined. China, which aims to become a LNG tanker

powerhouse, built 58. Five come from U.S. shipyards - though

those 1970s-era American made vessels are laid up and not

currently in use, AXSMarine said.

South Korea remains the dominant builder with 232 LNG

carriers currently on order. China, while still behind, is

rapidly expanding its footprint with 101 LNG carriers on order,

AXSMarine said.

U.S. shipyards cannot turn out vessels fast enough to meet

the USTR deadline, the Center for LNG told Reuters in a

statement.

"There are no such vessels in existence today, and building

them would take decades, making compliance impossible for the

industry," Charlie Riedl, executive director at the Center for

LNG, said in a statement on Wednesday.

The USTR requirement for 1% of LNG exports to be transported

on U.S.-built vessels would require as many as five

American-built ships by the end of the decade, which is not

feasible, API CEO Sommers said in the letter.

That's because it would take as long as five years to build

one LNG carrier at either of the two U.S. shipyards with docks

long enough to build such a ship, Sommers said.

"We urge the Administration to exempt crude oil and refined

product imports and exports - consistent with this

Administration's approach to exempt these same products from

baseline and reciprocal tariffs," Sommers wrote.

Vehicle carrier operators also hope to win relief from new

rules that would levy hefty U.S. port fees on all of their

foreign-built vessels. USTR also announced those unexpected

rules on April 17.