China will impose a 10 percent tariff on imports of liquefied natural gas (LNG) from the United States, extending a trade dispute into energy sector and casting a shadow over the building of U.S. new export terminals that would drive the nation to rank as the world’s second biggest gas supplier.
Beijing announced Sept. 18 it would levy tariffs on about $60 billion worth of U.S. products starting Sept. 24 in response to duties imposed by the Donald Trump administration in escalating trade disputes.
The Chinese tariffs would have a negative effect on the Trump administration’s ambitions to become a global energy leader taking advantage of its big shale oil and natural gas supplies. The U.S. is expected to export over 1,000 billion cubic feet (bcf) of natural gas in 2018.
As the world’s second largest importer of LNG, China bought about 15 percent of all U.S. LNG exports in 2017, but is set to purchase less than 100 bcf of U.S. LNG in 2018, a significant fall compared with last year, according to data from U.S. Department of Energy data.
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China has only taken gas delivery from four ships since June, as compared to 17 for the first five months of this year.
U.S. export terminals that are being planned or built were expected to take up 60 percent of all new LNG production sold on the market by 2023, with Chinese customers expected to take the majority of those new supplies, according to industry data.
For U.S. companies planning to build new LNG export terminals or expand existing ones by adding processing units such as such as Cheniere Energy (LNG.A), Kinder Morgan (KMI.N) and Sempra (SRE.N), the LNG tariff is a worrisome sign for future trade relations and casts doubt over their projects’ final investment decisions (FIDs), which enables the construction of facilities. Analysts say some commercial agreements may be on hold until there is more visibility.
Including LNG “is a good indicator of how serious things have gotten between the U.S. and China on this trade issue,” said Charlie Riedl, executive director of Center for Liquefied Natural Gas, members of which include Cheniere Energy, Chevron and Exxon Mobil.
“The longer the dispute lasts, the less likely proposed projects will find financial backers,” said Riedl.
The U.S. has been seeking for more European imports of its natural gas as the trade tension continues.
China imported 1.6 million tonnes, or 11 percent, of the 14.9 million tonnes of LNG has been exported from the United States so far this year, according to Thomson Reuters data. That was equivalent to 5 percent of the country’s total LNG imports.
Although China has a huge demand for gas especially in the winter for heating, it should easily find alternative supplies from other gas exporting countries such as Qatar and Australia, said analysts and traders.