China Slaps Tariffs On U.S. LNG, Threatens Export Growth

As expected, China yesterday retaliated against the U.S. after President Trump announced a list of another US$200 billion worth of Chinese goods that will be subjected to tariffs, and slapped tariffs on US$60 billion worth of U.S. products, including liquefied natural gas. Although the tariff was only 10 percent, rather than the initially threatened 25 percent, it is still bad news for U.S. LNG producers.

LNG is an emerging export market for U.S. natural gas producers, and one of their most important tasks at the moment is to secure enough long-term LNG purchase commitments in order to generate enough funds to build new LNG and export capacity.

China is widely seen as the major driver for future LNG demand as Beijing’s anti-pollution fight focuses on a shift from oil to gas, including LNG. Wood Mackenzie reported earlier this week that China’s LNG imports this year could hit 52 million tons, after a 45-percent jump last year, to 38 million tons.

At the same time, the United States is quickly turning into a major exporter. An earlier report from Wood Mack said that by the mid-2020s, U.S. production will be second only to Qatar’s, overtaking Australia. Yet this will require a lot of investment, some of which could come from China. If bilateral relations deteriorate further, however, this funding would be off the table.

In the immediate term, the tariffs are in themselves a bad development for U.S. LNG exporters. The Wall Street Journal quoted the head of S&P Global Platts’ gas and power analytics as saying “It’s a big deal for the U.S.-China gas trade. The tariffs will push Chinese buyers to other sellers in Asia and the Middle East because the U.S. will no longer be considered a low cost option.”

“The U.S. now can’t come in with lowball price deals,” Ira Joseph added. This could interfere with the U.S.’s rise to the top spots among LNG exporters with potentially serious consequences as competition on the LNG market intensifies and buyers can take their pick of cheap supply.

By Irina Slav for Oilprice.com

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