China casts shadow over new U.S. LNG terminals with tariff

Irving Hamilton
September 20, 2018

As expected, China yesterday retaliated against the USA after President Trump announced a list of another US$200 billion worth of Chinese goods that will be subjected to tariffs, and slapped tariffs on US$60 billion worth of USA products, including liquefied natural gas.

A liquified natural gas (LNG) storage tank and workers are reflected in a puddle at PetroChina's receiving terminal at Rudong port in Nantong, Jiangsu province, China, September 4, 2018.

China has placed a 10 per cent tariff on gas imports from the USA, handing Australian LNG exporters price and investment advantages over their main rival for the growing Chinese market.

The tariffs undermine Trump's drive to use USA shale oil and natural gas to turn the United States into a global energy leader.

While energy officials on Wednesday did not specifically refer to the trade war in opening remarks, some USA government representatives were initially concerned that the Chinese delegation might not show for the event after some members of the National Energy Administration of China missed an event Tuesday evening, a person familiar with the matter said.

Those exports were anticipated to increase to an average of 9.9 billion cubic feet per day in 2018, marking a 15 percent gain from last year's levels, the DOE said last week. One billion cubic feet is enough to fuel about 5 million USA homes for a day.

Exports of oil products and LNG to China have grown rapidly in the past two years.

The country has taken delivery from just four vessels since June versus 17 during the first five months of the year.

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LNG is an emerging export market for USA natural gas producers, and one of their most important tasks at the moment is to secure enough long-term LNG purchase commitments in order to generate enough funds to build new LNG and export capacity.

Including LNG "is a good indicator of how serious things have gotten between the US and China on this trade issue", said Charlie Riedl, executive director of Center for Liquefied Natural Gas, a group whose members include Cheniere Energy, Chevron and Exxon Mobil. The longer the dispute lasts, the less likely proposed projects will find financial backers, he said.

Analysts say the tariffs will particularly hit plans by USA companies, such as Cheniere Energy, Sempra and Kinder Morgan, to build new terminals or expand existing ones by adding processing units, known as "trains".

"Some commercial agreements may be on hold until there is more visibility", said Stacey Morris, director of energy research at Alerian Indexes.

But the smaller Chinese tariff than expected helped lift Cheniere Energy, whose shares were up 2.3 percent, and Golar LNG, whose stock rose 1.8 percent.

The United States has exported over 1.3 trillion cubic feet of natural gas since LNG exports began in 2016, thanks to the country's shale boom, according the DOE.

LNG Limited chief executive Greg Vesey, according to Bloomberg, said that he expected Chinese buyers would wait for certainty on tariffs before signing contracts.

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