New US LNG Projects May Feel Pinch from Latest Salvos in US-China Trade War
In response to the Trump administration’s latest round of tariffs on approximately $200 billion of Chinese imports, the Chinese government has retaliated with plans to impose new tariffs on roughly $60 billion worth of imports from the United States. The Chinese government’s action includes a 10-percent tariff on U.S. liquefied natural gas (LNG), effective September 24.
What could the most recent chapter in the ongoing U.S.-China trade dispute mean for the growing U.S. LNG export market?
“The impact on the short-term market is likely to be less than we previously indicated,” Giles Farrer, research director with Wood Mackenzie, stated in a commentary Wednesday. “This is partly because the level of the tariff is lower than initially proposed, 10 percent now versus 25 percent in August, but also because we think China has already completed the majority of its procurement for winter. Possibly because of this, we have recently seen spot and futures prices for winter come down despite strengthening oil prices.”
Farrer noted that China purchased approximately 3 million tons per annum of U.S. LNG in the 12 months up to June 2018, making it the second-largest buyer of U.S. LNG in that period. As the U.S.-China trade dispute escalated, however, Chinese buyers gradually reduced their purchases of U.S. LNG, he added.
“If China still needs to procure spot cargoes, we think that this is likely to result in a premium of up to 10 percent on supply from non-U.S., lean sources like the Australia East Coast projects, Tangguh, Gorgon or the Qatari Mega-trains,” Farrer continued. “Chinese buyers’ appetite to pay significantly higher prices for LNG from other sources may be limited by the price they can sell gas domestically.”
In the longer term, developers of new LNG export projects may feel the pinch from China’s retaliatory tariff.
“It restricts the target market for developers of new U.S. LNG projects trying to sign new long-term contracts,” Farrer explained. “However there is still plenty of appetite for second-wave U.S. LNG projects from other buyers in Asia and Europe, as evidenced by recent contracting momentum at Freeport, Calcasieu Pass and Sabine Pass Train 6. The first wave of U.S. LNG projects were successful despite not signing contracts with Chinese buyers.”
The tariff on U.S. LNG could also support development of Russian pipeline projects and other non-U.S. investments catering to the Chinese market by potentially allowing them to push for higher long-term contract prices, added Farrer.
“The recent deal between PetroChina and Qatar is evidence of this,” Farrer concluded.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Falcon Oil Declares Commercial Flow Test Results for Shenandoah Well
- Macquarie Strategists Expect Brent Oil Price to Grind Higher
- Japan Failing to Meet Corporate Demand for Clean Power: Amazon
- UK Oil Regulator Publishes New Emissions Reduction Plan
- Pennsylvania County Joins List of Local Govts Suing Big Oil over Climate
- PetroChina Posts Higher Annual Profit on Higher Production
- US, SKorea Launch Task Force to Stop Illicit Refined Oil Flows into NKorea
- McDermott Settles Reficar Dispute
- Russian Navy Enters Warship-Crowded Red Sea Amid Houthi Attacks
- USA Commercial Crude Oil Inventories Increase
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Oil Demand Outpaces Expectations, Testing Calculus on Peak Crude
- House Passes Protecting American Energy Production Act
- TotalEnergies Restarts Production in Denmark's Biggest Gas Field
- USA Oil and Gas Job Figures Jump
- Republican Lawmakers Say IEA Has Abandoned Energy Security Mission
- Blockchain Demands Attention in Oil and Gas
- Houthis Warn Saudi Arabia of Retaliation If It Backs USA Attacks
- Macquarie Sees USA Oil Production Exiting 2024 at 14MM Barrels Per Day
- Summer Pump Prices Set to Hit $4 a Gallon Just as Americans Hit the Road
- Chinese Mega Company Makes Major Oilfield Discovery
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Another Major Oilfield Discovery
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Vessel Sinks in Red Sea After Missile Strike
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension
- Equinor Makes Discovery in North Sea