U.S. Tells Chinese Propane Buyer That Broke Contract to Pay Up

(Bloomberg) -- While the Chinese government threatens a 25 percent tariff on propane imports from the U.S., an American court is ordering retribution for a breach of contract to buy the heating fuel that’s a key ingredient in making plastics.

German-owned Mabanaft Pte. Ltd. will collect $523.8 million in damages from Oriental Energy Co. Ltd. after the latter tried to back out of a six-year agreement to buy U.S. propane from the Houston Ship Channel. The contract was inked in 2013, when propane exports from the U.S. were in the nascent stage and economics for Asia still looked promising. By mid-2016, the arbitrage shut, and foreign buyers opted to pay multimillion-dollar cancellation fees in lieu of picking up their cargo. Oriental Energy tried to renegotiate the pre-agreed price terms as the global economics changed, but Mabanaft declined.

Now Oriental isn’t getting U.S. propane and has a large bill to pay in damages. Future purchases headed for China may get even pricier with the prospect of tariffs, which wouldn’t inspire buyers to maintain long-term purchase agreements. The biggest winners in all this mess? Saudi Arabia, Qatar and Iran, who may find new friends in the Chinese markets amid the American trade snafus.

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