China raises US LNG import tariffs to 25%

In retaliation for the US increasing the tariff on $200 billion in Chinese goods to 25% from 10%, which took effect May 10, China reported May 13 it will assess a 25% tariff on US LNG starting June 1—an increase from the 10% level instituted in September.

Since the LNG tariffs have been in effect, only four cargoes have been delivered to China from the US compared with 35 cargoes in the prior September-April period. This is despite more than 30% growth in both Chinese LNG imports (32%) and US exports (38%) over the same timeframe.

Between February 2016, when US started exporting LNG from the Lower 48 states, and July 2018, when the trade war started, China was the third-biggest purchaser of US LNG.

According to an analysis from Wood Mackenzie, the tariff increase may reduce flows to China further. However, in the short term, the absolute value of the tariff is partially offset by falling spot prices in Asia—from more than $10/MMbtu when initially introduced to closer to $5.50/MMbtu currently.

WoodMac forecasts strong supply growth will continue to outpace growth in key demand markets through 2020. Global supply will rise by 38 million tonnes/year this year and another 30 million tpy in 2020. Pacific markets, meanwhile, will only rise by 12 million tpy and 16 million tpy in 2019 and 2020, respectively. This market length creates flexibility to redistribute and optimize tradeflows, especially as the US is one of the more distant sources of LNG for China.

Long-term contracts

The last long-term contract signed by a Chinese offtaker and the US as seller was in February 2018—before the Trade War began, when PetroChina signed a 25-year sale and purchase agreements with Cheniere.

Since then, Chinese buyers have announced both SPAs and heads of agreement from the rest of the world, including projects in Mozambique and Canada, and portfolio sellers like Qatargas and Petronas.

An ongoing trade war between the US and China will continue to create hesitancy for Chinese buyers to sign up for new long-term volumes, WoodMac said.