If China follows through on its retaliatory threat of raising U.S. liquefied natural gas (LNG) tariffs from 10 to 25 percent, U.S. exports will be hit hard — but another country is waiting to gain from it.
Australia is poised to fill the gap for China, with its booming LNG sector well positioned. Last year, China imported 23 million tons of LNG from Australia, which made up about 42 percent of Australia’s exports. That figure could be increasing.
US LNG exports to China have plunged 80 percent this financial year, compared to the same time last year. President Trump’s threat to add an additional $300 billion in tariffs on China caused China to retaliate last week with the threat of raising tariffs to 25 percent on these imports starting June 1.
LNG producers in the U.S. and other major LNG exporters will be anxiously waiting to see how the tariffs could impact major natural gas production plant developments — especially future projects in the works or awaiting approval. China is expected to go from about 53 million tons of LNG imports in 2018 to about 93 million tons in 2025 — as it moves steadily to become the world’s largest gas importer.
"Overall, this is a positive for the marketing of Australian LNG," said Credit Suisse energy analyst Saul Kavonic about China looking to stabilize its supply.
"US LNG is a competitor to Australia, so the tariffs work to take Australia's main competitor out of the market,” Kavonic said
Kavonic sees the trade war raising the risk of Chinese buyers looking to sign 20-year trade deals on imports.
A Wood Mackenzie study forecasts a $200 billion surge in new LNG development projects, with production sites capable of about 90 million tons expected to reach final investment commitments over the next two years. Much of that new LNG development was slated to take place in the US, according to the study.
Trump has hoped to fuel America’s role as a leading global LNG exporter. These construction projects were expected to support the country’s shale gas boom. The US is the fastest-growing LNG exporter in the world, and analysts predict the country will rank right behind Qatar and Australia by the end of this year.
The US had a 53 percent increase in LNG exports in 2018 over the previous year.
The U.S. Energy Information Administration projects continued increases in American LNG export capacity will soon make the country the world’s third-largest LNG exporter.
But China is a major LNG customer, now the second biggest LNG importer in the world behind Japan.
While the latest threat in tariff increases is serious, the broader trade war is expected to have a larger impact — especially on long-term natural gas development projects.
Rystad Energy forecasts that US LNG export volumes will nearly quadruple over the next few years, based on currently sanctioned projects. The company expects that some of the more expensive development projects could struggle to offer competitive terms to buyers, and hurt projects aimed at Chinese exports.
Rystad Energy gas analyst Sindre Knuttson cited US-based gas group Cheniere Energy as a likely casualty of the trade war. Cheniere had signed a 20-year deal to annually supply 2 million tons of LNG to Chinese state-owned company Sinopec starting in 2023, but finalizing this deal has been delayed.
Nikos Tsafos, of the Center for Strategic and International Studies in Washington, DC, also sees a long-term impact on LNG exports that can hurt US exporters. For now, though, Tsafos sees pre-tariff conditions moderating the effects.
Some US LNG reached Chinese buyers through portfolio companies with multiple supply sources and customers. On the other side of the issue, China’s three large national oil companies spurned long-term contracts with US suppliers because they “simply did not trust the United States,” Tsafos said.
But the next wave of US LNG projects already in the works could be hurt by a global perception of the trade war disrupting LNG, undermining confidence in energy security and an open market for LNG and energy overall.
“Those second-order effects are likely to be far more important than whether US LNG can flow to China,” Tsafos said.
By Jon LeSage for Oilprice.com
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