Tariffs on US LNG
Analysts project that China’s threats to impose additional tariffs on the imported U.S. goods worth $60 billion would likely lead to changes in the state of the energy market. The likely shift in the market projected by the analysts is because liquefied natural gas (LNG) from America is part of the goods targeted by China.
China’s decision to impose tariffs on LNG has raised concerns considering that it previously wasn’t on the list of goods on which the country planned to impose tariffs. Sources claim that it was because China considers LNG as one of its efforts in eradicating air pollution.
However, the Country seems to have shifted in its position to exclude LNG from the goods subject to tariffs. This is owing to the escalating trade disputes between China and the US. The U.S. happens to be the foremost producer of LNG in the world and is rapidly becoming a major exporter of the natural gas globally.
A senior analyst at Verisk Maplecroft, Hugo Brennan, noted that if tariff on natural gas is implemented, it will cause serious effect on America’s gas industry as well as Trump’s agenda of energy dominance.
Brennan noted that the forecasted gas demands of China would have complemented the aim of Trump’s administration to make the US a superpower in the energy sector. However, that might prove difficult if China imposes the threatened tariff.
As at 2017, China reportedly ranked as the second largest importer of natural gas in the world. In June, the International Energy Agency projected that China is envisaged to become the top importer of LNG in the world in 2019. In 2017, approximately 15% of natural gas exported from the US was to China.
Shift in Market Position
This current threat is a contrasting shift from last year’s position when Beijing reportedly offered to import more of U.S. energy products to lower the excess bilateral trade shortfall. However, that seems to be not so possible anymore as Brennan also noted that the previous trade discussions have suffered breakdown due to the series of threats met with counter-threats.
However, there are some analysts who opine that China’s threat of tariff would not particularly have solid effects on the plans of the US to become a superpower in the energy sector. It is the contention of these analysts that LNG exports contracts are long-term and so the effect of this tariff wouldn’t be so pronounced till the expiration of the deal.
Alternative Sources
Fitch Solutions Macro Research analysts stated that the imposition of 25% tariff coupled with the position of the Chinese government against energy imports from the US would likely force natural gas imported from the US off the gas market of China. Pitching his tent with Fitch Solution analysts, Brennan also stated that the dynamics accompanying geopolitical factors would reduce the ability of American exporters to rank as the top suppliers of gas to China.
Platts, an energy information firm has gathered from Chinese buyers of US LNG that the companies would be prevented from buying from US suppliers soon since the tariffs would cause the product to be so high as to make it unaffordable. Fitch Solutions also stated that it envisaged that primary LNG suppliers including Total, Trafigura and Shell would likely feel the effect of the position the most. The reason being that these companies get cargoes from projects based in the US before subsequently selling the products in markets where prices and demands are very strong.
Official data on Wednesday from China revealed that US imports of natural gas fell to the lowest level it had been in a year in July. The fall came even in the presence of robust 2028 gains as China reportedly imported roughly additional 17% US natural gas from January to July 2018* than it did in the whole of Last year.
With this new position, analysts are projecting that China would be on the lookout for other major suppliers of LNG. This would give room for major suppliers such as Qatar and Australia gaining from these new developments long term. Analysts project that Australian producers in the course of the coming five to ten years* would likely increase their capacity and also output as it would be an excellent opportunity for them to benefit from the growing Chinese natural gas market.
According to Capital Economics, a research consultancy, that could likely reduce the major hit suffered by Australia due to the increasing trade barriers. Experts have also opined that suppliers such as Russia and Central Asia may also enjoy an increase in piped gas demand. Analysts have however indicated the likelihood that China would become more open to increase in energy price if there is a reduction in its number of natural gas suppliers.
