China's decision on Tuesday to hit US LNG imports with a 10% tariff dealt a blow to the prospects of US Gulf Coast export projects that are hoping to start up in the early to mid-2020s, while LNG developers in other countries could get a boost from the news by using the trade war to court Beijing buyers.
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Register NowAs global LNG leaders gathered for the second day of the Gastech conference in Spain, they were left to digest the fallout of an increasingly integrated market from China's retaliation for President Donald Trump's earlier imposition of additional tariffs on US imports of Chinese goods.
The tit-for-tat tariffs create uncertainty in the market, Steve Hill, an executive vice president in Shell's unit that provides natural gas and LNG, as well as marketing and trading services, said in an interview with S&P Global Platts on the sidelines of the conference.
"Ultimately, China has a lot of growth in its LNG demand and the US is a very material source of supply, so having an impediment stopping the two from getting together, that creates an inefficiency in the market, and no one wins from that," Hill said.
The China decision is unlikely to have significant impact on near-term prices of LNG for either country, but it could have lingering long-term impacts, according to S&P Global Platts Analytics. The US is not a majority player for China's current LNG supply, representing just under 5% of their total supply in 2017 and tracking toward around 7% of the country's total LNG supply this year to date. It's therefore unlikely that the move will have a significant near-term impact to LNG prices in Asia or globally as a consequence of the tariffs. However, it could cause a shift in trade flows and limit flexibility in the LNG spot market.
The most immediate concern will be for the second wave of US export projects that are trying to secure financing to move their projects to a positive final investment decision. Many had elaborate booths at the conference to promote their efforts.
"If for whatever reason there is a need to avoid bringing US cargoes into China, there is enough scale and flexibility in the market that that would be manageable. The bigger implication will be on the launching of new projects," Hill said. "Some of the US Gulf Coast projects clearly need long-term sales to go."
One of those projects is NextDecade's Rio Grande LNG, which is proposing an export terminal for the underutilized Brownsville, Texas, port.
Standing in front of the developer's booth at Gastech shortly after China's decision, CEO Matt Schatzman said he wasn't too concerned at the moment.
"I think everybody thinks it will be short, and we're going to get it resolved, and it won't have any long-term impact," Schatzman said of the US-China trade dispute.
China said its retaliatory tariffs on an additional $60 billion worth of US imports would include a 10% tariff on LNG, effective September 24. Beijing kept crude oil off its latest list of products.
The Chinese Ministry of Commerce's list imposed a 10% additional tariff on 3,571 US items, including LNG, and a 5% additional tariff on 1,636 US products. LNG does not attract a tariff currently.
The move followed the US decision Monday to implement a 10% tariff on an additional $200 billion worth of Chinese imports from September 24. Washington will further lift the duty to 25% January 1.
PIONEER CHENIERE
Andrew Walker, vice president for strategy at US LNG pioneer Cheniere Energy, said in reaction to the Chinese tariffs that there would be no "economic impact" on its existing two-part sales agreement with CNPC.
"Our position remains the same as it has been for the past few months -- as a seller we don't expect any economic impact for us," Walker said at Gastech.
He said that Cheniere's US LNG was sold on a destination-free basis, so it would be up to the customer to decide on the destination for the cargoes.
Signing new contracts with Chinese counterparties could be challenging in the near term. In the long term, Walker said Cheniere sees US LNG supplies to China as "win-win" for both sides.
As for gas and LNG exporters and developers in other countries such as Qatar, Mozambique, Russia and Canada, the US-China tensions create an opening for growth in their relationships with China, Hill said.
"It clearly hinders marketing new US projects and by definition hopefully helps other projects," Hill said.
REGULATORS WATCHING
Charlie Riedl, executive director of the Center for Liquefied Natural Gas, said in an interview at the conference that LNG is no longer an "innocent bystander" in the US-China trade war.
"Projects that have timelines that are years long, as those projects are delayed further, there is a realistic possibility getting to FID will be difficult," he said.
Earlier in the day, before China's decision, a member of the US Federal Energy Regulatory Commission acknowledged the possibility that some proposed domestic LNG export projects may not get built if their access to the Chinese market is reduced or cut off due to retaliation from Beijing.
"Ultimately, the markets will prevail," FERC Commissioner Neil Chatterjee said in an interview at Gastech. "We'll have to see how that plays out."
--Harry Weber, harry.weber@spglobal.com
--Stuart Elliott, stuart.elliott@spglobal.com
--Edited by Joe Fisher, joe.fisher@spglobal.com