Chinese Tariffs on LNG Hits US LNG Export Wave

Sabina Pass Liquefaction

Sabina Pass Liquefaction. Credit: Cheniere Energy, Inc.

Chinese new tariffs on liquefied natural gas and crude oil on $60 billion worth of US imports could hit the energy market. US and China could be caught in a trade war, at a time when the US is all set to grow their energy export prowess.

The officials of the two countries met for negotiations recently in Washington, in the backdrop of China’s threat to impose 25% tariff on US LNG bringing in uncertainty for the US gas export industry. In light of the trade negotiations failing between the US and China, US LNG exporters could be shipping fewer cargoes to a key market, according to analysts. Earlier in August, China initiated the threat against LNG and other products. And, this was seen as a counteraction to the Trump administration’s declaration of proposed tariffs on a list of $200 billion of Chinese imports.

In the context, Matthew Hong, Director of Power and Gas Research at Morningstar explained that the US producers and exporters could be shut out of the second-largest market for LNG in the short term. He added that in the long term, a prolonged conflict could delay final investment decisions on second-wave LNG projects. This would force US suppliers to miss out on a probable tighter market in 2020.

Meanwhile, US LNG industry felt threatened with the possibility of the LNG tariff as China has always been a potential buyer with its intense demand for LNG to curb air pollution from coal combustion. It was reported earlier that Cheniere Energy signed a long-term supply contract with a subsidiary of the state-run China National Petroleum. Furthermore, several US LNG terminal projects have received federal approval but look forward to a final investment decision requiring similar long-term contracts. Hong reiterated that a hard-line US trade stance could increase the risk of delays.

In the context of overall LNG imports, US LNG is a small share of China. And, in the backdrop of the trade dispute between the US and China, other exporters of LNG like Australia and Qatar would stand as gainers. Meanwhile, Stephen Comstock, American Petroleum Institute Director for Tax Policy stated that the trade dynamics could impact the construction of domestic LNG projects aiming to capture the Chinese market, which would cascade into reductions into domestic natural gas production.

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