U.S. Gas Exports Hit by China Tariffs as Trade War Escalates

(Bloomberg) -- China plans to slap tariffs on U.S. natural gas exports as trade tensions escalate, a likely setback for the burgeoning energy relationship between the world’s two largest economies.

The Asian nation said in a statement Tuesday it would levy a 10 percent duty on liquefied natural gas starting Sept. 24, retaliation for a fresh round of tariffs announced the day before by the U.S.

While China’s levy is less than the 25 percent it proposed last month, the tariff still brings additional pressure to bear on the U.S. gas industry, which is competing with Russia, Australia and Qatar for market share in China, the world’s biggest buyer. Just last year, American officials were courting Chinese companies to invest in new export projects.

China’s move signals how much pain Presidents Xi Jinping and Donald Trump are willing to endure not to back down from a trade fight. Trump risks stifling the U.S. gas export industry, which is seeking about $130 billion to fund more than a dozen projects, while Xi threatens to raise the cost of his drive to eliminate smog by burning less coal.

“Chinese companies will have an aversion to investing in U.S. LNG projects in the short term” if tariffs are imposed, Saul Kavonic, Credit Suisse Group AG’s director of Asia energy research, said before China’s announcement. “Australia and Qatar’s LNG sectors will benefit from being seen as a lower-risk source of supply by customers in the world’s fastest growing LNG market, at least over the near term.”

Booming Demand

China’s push to use more natural gas is driving global demand growth, with LNG imports jumping 47 percent in the first seven months of the year. Though it’s the third-largest buyer of U.S. cargoes, American supply made up a little less than 6 percent of purchases over that period, according to Sanford C. Bernstein & Co. If U.S. companies can seize 20 percent of the market by 2030, it could lower the trade deficit with China by $50 billion, Bernstein estimates.

Higher oil prices and a surge in LNG demand have reignited interest in export ventures, with about 15 U.S. projects targeting final investment decision this year and next, the most of any nation, according to Bloomberg NEF. Projects have been seeking investments or off-take agreements from China, which earlier this year topped Japan as the world’s biggest gas importer.

On Monday, Cheniere Energy Inc., America’s first and biggest shipper of shale gas, struck a 15-year agreement to sell the fuel to commodities trader Vitol Group. The pact is Cheniere’s fifth this year. Venture Global LNG Inc., which is developing a terminal in Louisiana, has finalized four such contracts over that period.

To read more about China’s tariffs on $60 billion of U.S. goods, click here

Liquefied Natural Gas Ltd., which has yet to make a final investment decision of the $4.35 billion Magnolia LNG project in Louisiana, expects Chinese buyers will wait for uncertainty on tariffs to be removed before signing contracts, Chief Executive Officer Greg Vesey said Monday at an industry conference in Barcelona.

“It is hard to see any of these hopeful projects getting another Chinese buyer signed up for long-term volumes” if China slaps tariffs on U.S. gas, Trevor Sikorski, an analyst at Energy Aspects Ltd., said before Tuesday’s announcement. “Given China is a huge part of global LNG demand growth, that is a big headwind for these new projects.”

Exporting nations such as Australia and Qatar could benefit from the trade tensions, according to Xizhou Zhou, an analyst at IHS Markit.

“You have two important parties in the LNG market -- one is a very important large buyer, one is an important large supplier -- less likely to negotiate with each other,” he said by phone. “So Qataris, Australians will have less competition when it comes to the Chinese market for long-term contracts. ”

The vessel GasLog Greece, which left Cheniere’s liquefied natural gas export terminal in Louisiana on Aug. 15 en route to China, changed its destination mid-journey to South Korea. It was one of at least two U.S. LNG shipments heading for China during the past month. The other ship, Rioja Knutsen, arrived Sept. 3 at Tianjin.

--With assistance from Dan Murtaugh and Anna Shiryaevskaya.

To contact the reporters on this story: Stephen Stapczynski in Tokyo at sstapczynsk1@bloomberg.net;Christine Buurma in New York at cbuurma1@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, ;Simon Casey at scasey4@bloomberg.net, Christine Buurma

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