Energy industry observers said it is unlikely that China would put a tariff on liquefied shale gas imports from the U.S., even as the Chinese government expands its duties on U.S. goods amid heightened trade tensions.
Additional tariffs on about $34 billion of U.S. products, including crude oil, took effect July 6 in response to U.S. tariffs on an equivalent value of Chinese exports. While concerns that China may eventually put U.S. LNG on its tariff list have spooked the global gas market, demand for the fuel will outweigh the current political rift given concerns that China could face another severe winter as it continues to phase out coal-fired power plants, analysts said.
"I think U.S. LNG is almost a perfect match for their natural gas supply mix," Akos Losz, a researcher at the Columbia University Center on Global Energy Policy, said in an interview. "The government is keenly aware that those shortages they saw last winter can repeat again, so I think they will probably be very reluctant ... short of an all-out trade war."
Height Securities LLC analyst Katie Bays agreed and added in an interview that U.S. LNG cargoes in any event "could easily find another home" due to their destination flexibility, without U.S. LNG export terminal developers feeling a pinch.
From February 2016, when Cheniere Energy Inc. began shipping LNG, through April 2018, China accounted for nearly 14%, or 169 Bcf, of total U.S. liquefied gas exports. In April, China imported 17.5 Bcf of U.S. LNG."It would be more painful for China," Bays said.
The only U.S. company that could face a financial downside should China impose tariffs on LNG is Cheniere, Bays said, because its marketing subsidiaries might have to sell cargoes from the Sabine Pass and Corpus Christi export terminals for a "slightly smaller amount of money."
Cheniere Marketing LLC and Cheniere Marketing International LLP, however, would likely remain somewhat insulated in that scenario because of their sales arrangements with buyers like the trading company Trafigura Pte. Ltd.; French utility Electricité de France SA; and Engie SA, whose upstream LNG assets are now owned by Total SA. The deals with Electricité de France and Engie are linked to European indexes, while Trafigura's purchase price for Cheniere Marketing volumes is indexed to the monthly Henry Hub gas price, plus a fee.
Cheniere in February signed two LNG sales and purchase agreements with China National Petroleum Corp. guaranteeing supplies through 2043.
Executives at Australia's LNG Ltd., whose Magnolia LNG project in Louisiana hopes to join the second wave of U.S. liquefied shale gas exporters, said in October 2017 that they were courting Chinese buyers. But CEO Greg Vesey told Bloomberg in June that the company is in serious talks about a long-term contract, some prospective partners do not want to make final decisions until there is more visibility on the tense trade situation.