China is the world’s second largest importer of LNG after Japan and an important customer for U.S. LNG. For example, this year between January and August, China purchased 1.6 of the 14.9 million tonnes of U.S. LNG, according to Thomson Reuters’ data, but Sept. 24 marked the start of President Trump’s imposition of tariffs on $200 billion worth of Chinese goods and China’s retaliatory levy of 10 percent on imports of US LNG. What effect will this have on US LNG exporters in particular and LNG trade?
Wholesale prices are already near their highest levels in a decade, driven by rising shipping costs, low European gas stocks and Chinese purchases to avoid a recurrence of last winter’s gas shortages. In the run-up to and during this winter, tariffs on U.S. LNG could lead Chinese purchasers to diversions and swaps with other sources of supply such as Qatar, Australia, Papua New Guinea, Russia and according to Guy Broggi of Consultant indépendant chez LNG Markets “even European re-loads.” China is expected to buy about 8 million tons of LNG in coming months on the spot market. Companies like Cheniere Energy could still benefit since they also supply the spot market for traders to swap cargoes, take advantage of price differences or shorter delivery times.
How long and how far this tit-for-tat spat will go on for is anyone’s guess but on the surface, this sounds like bad news for U.S. LNG exporters. China National Petroleum Corp.’s contract with Cheniere Energy to supply 1.2 million tons of LNG a year until 2043 should be unaffected.