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China's US LNG imports fall short of Phase 1 trade targets: Panjiva

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China's US LNG imports fall short of Phase 1 trade targets: Panjiva

Highlights

China almost $40 billion behind its commitments

LNG imports helped drive shipments of energy products

Singapore — China's imports of US LNG totaled about $300 million during the first half of the year, and together with purchases of the remainder of US energy products, fell short of Phase 1 trade targets, according to recent data from Panjiva, a business line of S&P Global Market Intelligence that provides news and analysis about global supply chains.

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China has fallen almost $40 billion behind its commitments to buy US goods under the agreement amid coronavirus-linked supply chain disruptions and demand shocks. Meanwhile, a review of Phase 1 targets that was due on Aug. 15 was postponed amid reports of Chinese efforts to boost purchases.

Imports of agriculture and energy goods such as LNG were a bright spot in the deepening gloom of political and trade relations between the two countries, but even these purchases were well short of targets.

China's meat, energy demand lifts US exports

China agreed in January to more than double its imports of a basket of 548 US products that would amount to an extra $200 billion in purchases through 2020 and 2021 compared to 2017 levels. To achieve that target, China would need to buy about $11.9 billion of these goods every month, but its total purchase only reached about $6.3 billion in June.

LNG imports helped drive the shipments of energy products, a category of goods in which China could make significant headway towards its goals. Such products — which include LNG, oil, refined petroleum products and coal — should account for $52.4 billion worth of China's purchases over 2017 levels across the next two years, although product-specific details about the goals were not released.

For 2020, the target is $18.5 billion over what China bought in 2017. But year-to-date purchases of energy goods had amounted to only about $2.9 billion by the end of June, according to Panjiva.

"Taken together, the data shows that the purchasing commitments element of the trade deal is out of compliance, creating another potential source of friction between the two countries which would come on top of: US sanctions regarding Hong Kong's new security laws; US engagement with Taiwan; sanctions targeted repression of the Uigher people in Xinjiang; apportionment of blame for the propagation of SARS-COV-2; and ownership and control of TikTok among others," Panjiva said in a recent analysis.

US LNG exports by destination - January to May 2020

Even if the trade shortfalls do not scupper the deal, some market observers have warned that the escalating political tensions could.

Analysts at independent research firm ClearView Energy Partners said the trade bargain was "unlikely to outlast the November 2020 U.S. elections" and could collapse before then.

ClearView said the political tensions also undermine a potential understanding between the countries that commitments to long-term supply agreements with US LNG developers will count toward the $52.4 billion goal, as a pair of US industry groups pitched to the White House in May.

From the beginning, experts were skeptical that China could meet the massive commitment to buy energy products. They pointed to market constraints that became more severe in the pandemic. But the bargain did bring an end to a yearlong freeze on China's imports of US LNG exports that resulted in tit-for-tat tariffs imposed during the trade war.

After signing the deal, China allowed exemptions to a 25% tariff on LNG that enabled Chinese buyers to resume purchasing the fuel in March.

Chinese demand was never going to be enough to prevent shut-ins across the six LNG export terminals operating in the US, but it may have helped soften the blow. It is not clear how much LNG China can absorb, and there is the potential for further outbreaks of the coronavirus.

In April, China imported three US LNG cargoes after a hiatus of a year, and this spiked to seven cargoes in May, before subsiding to three in June and two in July, according to vessel tracking data. US Gulf Coast arbitrage to Asia has widened with Platts JKM prices rising to a seven-month high of $4.172/MMBtu for October-delivery.

The biggest US LNG exporter, Cheniere Energy Inc., has shipped "over half a dozen cargoes now to China as things there start to normalize ... in terms of demand, in terms of tariffs, and [as] other opportunities present themselves," Cheniere Executive Vice President and Chief Commercial Officer Anatol Feygin said during an Aug. 6 earnings call.

"Clearly, there is a headwind in terms of the geopolitical backdrop that we're operating in," Feygin said. "But commercially, there's a massive tailwind. And this is the flexibility, the reliability that we've demonstrated, the relationships we've built on the commercial side. [They] all position Cheniere quite well to capture a substantial share of that market when the stars align."

(A version of this story was first published on S&P Global Market Intelligence, a division of S&P Global Inc., on Aug. 14.)