Chinese LNG Tariffs Won't Derail US Exports
Fitch Solutions Macro Research does not expect additional tariffs announced recently by the Chinese government to have a significant impact on US LNG exports over the next few months, according to a new report by the company.
“Over the next several months, we do not expect a significant impact on US LNG exports from the additional tariffs. First, China has already completed the majority of its procurement through the end of the year, none of which is assigned to US export facilities. US supplies are also largely contracted with the remaining volumes likely to be rerouted,” the report, which was sent to Rigzone, stated.
“Second, at 10 percent, the tariff is not high enough to shut in demand for US volumes outright due to the cost competitiveness of US LNG. Finally, Chinese buyers have been reducing purchases of US natural gas in recent months in the wake of rising trade tensions, limiting the fallout from a decline in Chinese demand,” the report added.
Over the longer term, the report stated that tariffs on US LNG “could threaten” the development of proposed liquefaction terminals.
“The loss of China as a potential purchaser of US supplies removes a significant destination for second-wave terminal developers seeking long-term financing. However, we maintain that there is sufficient global demand growth in other markets to offset China. This was exhibited via the strong response from ongoing contracting efforts at a number of pre-FID projects,” the report said.
“Moreover, given the increased flexibility and shortened terms of supply purchase agreements, LNG developers have increasingly looked beyond traditional methods of securing demand, rerouting cargoes and boosting efficiencies in the process,” the report added.
Looking at the possible next steps in the trade war between China and the US, Fitch Solutions Macro Research said it does not rule out an escalation.
“President Trump has already threatened to unveil a fourth round of tariffs to cover all remaining Chinese imports in response to Beijing's latest announcement. We believe the Chinese could impose tariffs on crude, which have been exempt from the dispute thus far,” the report stated.
“Given that China is the second-largest purchaser of US crude, this would hurt American oil producers and shippers to a greater extent than LNG. Alternative buyers would be found, but differentials would likely suffer in the process,” the report added.
On September 19 the Chinese government announced plans to impose new tariffs on around $60 billion worth of imports from the US effective September 24. This includes a 10 percent tariff on US LNG.
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