The Trump administration is reportedly planning to beef up its tariffs on China, a move that energy observers said could hurt U.S. efforts to attract LNG buyers from that critical market.
Politico reported March 13 that President Donald Trump told top advisers he wanted to increase tariffs and investment restrictions on China in response to allegations of intellectual property theft. U.S. Trade Representative Robert Lighthizer presented Trump with a plan that would target the equivalent of $30 billion a year in Chinese imports, but the president pushed his trade chief to shoot for something more aggressive, Politico said, citing two people involved in the administration's trade deliberations.
Trump's plan to boost tariffs on China would come as U.S. LNG exporter Cheniere Energy Inc. looks to grow its presence in the country, which already imports the company's LNG on a spot and short-term basis and recently signed a deal to receive U.S. volumes on a long-term basis. Cheniere CEO Jack Fusco told an audience in Houston on March 7 that his company could double in size on Asian demand alone, in part due to efforts in China to clean the air over its cities.
"Just about every drop that Cheniere has produced that doesn't go to a foundation customer has went directly to Asia, and more specifically, directly to China," Fusco said at CERAWeek by IHS Markit. "We don't see that changing. We see a secular shift in what China is trying to do to clean their air and to generate electricity."
Cheniere is not the only U.S. company with its sights set on China. The CEO and billionaire backer of the Freeport LNG project under construction in Texas said the company's expansion efforts are focused most strongly on China. Other export hopefuls have vied for a piece of the Chinese market, as developers wait to see if a White House push will give Chinese buyers the confidence to commit to long-term contracts that they had previously viewed with skepticism.
U.S. LNG developers are still reeling from Trump's 25% tariff on imported steel, which the industry says will drive up costs for big-ticket liquefaction and export terminals. Energy experts have said the steel tariff could also make possible LNG buyers less likely to buy American, and the potential for even more tariffs could exacerbate that risk.
"It took years for the United States to convince Chinese companies that the United States was open to Chinese investment in energy," said Nikos Tsafos, an LNG consultant and co-founder of the research firm Enalytica who writes about the geopolitics of natural gas. "The moment you attack Chinese goods across the board, it's hard to also say, 'Yes, we welcome your investment [and] we're a trusted partner.'"
Still, LNG is likely safer from Chinese retaliation than some goods, like manufactured products such as cars and jets and "symbolic" brands like Starbucks, according to Akos Losz, senior research associate at Columbia University's Center on Global Energy Policy. That is in part due to the desire of the Chinese government to grow the amount of gas in the country's energy mix and the reality that gas storage remains a problem in the country, he said.
"Despite all the rhetoric and geopolitical noise, U.S. LNG actually helps China diversify its natural gas supply mix, a key objective for the Chinese government," Losz said. "The fact that U.S. LNG is linked to the Henry Hub price is also an attractive feature from the Chinese standpoint, and their long-term contract with Cheniere provides the Chinese an opportunity to diversify their pricing basis away from oil."
