China Tariff Threatens U.S. Liquefied Natural Gas Boom
09/18/18 By Georgi Kantchev and Christopher M. Matthews morningstar.com
China's move to impose tariffs on U.S. liquefied natural gas imperils the ability of a burgeoning industry to export the bounty of American shale.
Retaliating against new Trump administration tariffs on $200 billion in Chinese goods, China on Tuesday issued levies on $60 billion of U.S. products, including a 10% tariff on liquefied natural gas, known as LNG.
Shares of Cheniere Energy Inc., the first U.S. company to export LNG from the U.S. Gulf Coast, rose on the news, as the tariff was lower than a 25% levy China had earlier threatened. Still, the tariff is bound to have an impact on American LNG exporters, analysts said, making them a potential early victim in the escalating trade battle between the U.S. and China.
China is the biggest source of new global LNG demand as the country steps up efforts to combat air pollution by shifting from coal-powered plants to natural gas and renewable energy sources. The U.S., which is emerging as a powerhouse in the global gas trade, was expected to mop up a big chunk of that demand.
But tariffs may now hamstring American companies as they negotiate for long-term contracts, experts said. Fewer long-term contracts could help stall a planned wave of new export terminal projects in the U.S. Numerous countries are competing with the U.S. as gas becomes a more globally traded commodity, including Australia, Qatar and Russia.
"It's a big deal for the U.S.-China gas trade," said Ira Joseph, head of gas and power analytics at S&P Global Platts. "The tariffs will push Chinese buyers to other sellers in Asia and the Middle East because the U.S. will no longer be considered a low cost option."
"The U.S. now can't come in with lowball price deals," he said.
An October U.S. LNG cargo out of Sabine Pass, La., fetches $9.04 per million British thermal units in Guandong Dapeng, China, according to S&P Global Platts Analytics. By comparison, a Qatari cargo to Guandong Dapeng goes for $10.48 per million British thermal units. A 10% tariff would make the U.S. price less competitive.
Trevor Sikorski, head of natural gas research at consultancy Energy Aspects, said that the tit-for-tat tariff moves could derail some proposed new export terminals in the U.S.
"Long-term implication is Chinese money is likely to look to countries they feel they can rely on for gas supply -- and that is good news for most of the new non-U.S. LNG projects," he said. "The biggest loser in all this is proposed U.S. LNG" infrastructure.
U.S. oil and gas producers have been eagerly awaiting new export projects, which would create new demand to eat into a glut of natural gas that has kept the U.S. benchmark price below $4 per million British thermal units for years. Natural-gas futures for October delivery were trading Tuesday at around $2.88 a million British thermal units on the New York Mercantile Exchange.
More than a dozen projects are awaiting regulatory approval in the U.S., though analysts say only a handful are likely to be greenlighted before the end of 2019. If Chinese buyers become less willing to buy U.S. LNG, it could be more difficult for U.S. LNG exporters to finance the projects, which cost billions of dollars each to build.
The tariff tussle could also cloud the prospects for long-term contracts, which are common in the industry. A number of legacy contracts are due to expire in the next few years, creating an opportunity for U.S. producers.
Cheniere signed two large supply agreements with China National Petroleum Corp. in February that run through 2043. But such long-term deals, favored by suppliers in part because they help finance expensive liquefaction facilities, may be imperiled by the new tariffs, according to analysts.
Producers like Qatar have significant volumes of unsold LNG emerging in the 2020s, meaning any wrinkle in the trade could provide an opportunity for U.S. competitors. Last week, Qatargas said it had agreed on a 22-year deal with PetroChina International Co.
"It looks highly unlikely any Chinese firm will be looking to sign up to long-term U.S. LNG contracts," Mr. Sikorski said.
Still, the fact that the tariffs were lower than China had threatened was welcomed by some investors, analysts said. Cheniere's shares rose more than 2% Tuesday, and shares of fledgling exporter Tellurian Inc. also rose. Cheniere declined to comment Tuesday.
"Over time the trade issues will work themselves out and we expect the Chinese market to continue growing," said Tellurian Chief Executive Meg Gentle.
Katie Bays, an analyst at Height Securities LLC, said the rise in Cheniere's share price reflected Chinese buyers' reliance on the spot LNG cargo market, of which U.S. supply makes up about 25%. Chinese companies had already purchased spot U.S. cargoes ahead of winter, and a steeper tariff would have been punitive to them, she said.
"Backing the tariff percentage off from 25% to 10% was a signal to the market that China was acknowledging how dependent they are on imported LNG, and imported U.S. LNG," Ms. Bays said.
U.S. LNG Exports to China Decline as Trade War Escalates
Sept 18 (Reuters) - As the trade war between Beijing and Washington escalates, fewer vessels carrying U.S. liquefied natural gas (LNG) have been going to China.
China, which purchased about 15 percent of all U.S. LNG shipped in 2017, has taken delivery from just four vessels since June versus 17 during the first five months of the year.
Prior to the slowdown, China was on track to import 141.6 billion cubic feet (bcf) of U.S. LNG in 2018, up from 103.4 bcf in 2017 and 17.2 bcf in 2016. It imported no LNG from the United States in 2015.
At its current pace, however, China is now on track to purchase less than 100 bcf of U.S. LNG in 2018 - less than last year. The United States, meanwhile, is on track to export over 1,000 bcf of gas as LNG in 2018.
One billion cubic feet of gas is enough to fuel about 5 million U.S. homes for a day.
In addition to the trade war, LNG traders noted the slowdown was also partially due to seasonal weather factors. China uses more gas during winter months for heating than during the summer for cooling.
China, which became the world’s second biggest LNG importer in 2017, is buying more gas as the government tries to wean the country off dirty coal as part of its push to reduce pollution.
The United States is expected to become the world’s third biggest LNG exporter by capacity in 2019.
Not good. Nor is it good to have politicians promoting dirty coal because they want those voters to vote for them. That's a big step back for NG. People need to wake up since this affects jobs in Louisiana and it curtails leasing, slams operators & landmen because less LNG exporting slows down drilling. So be careful who you vote for.
This is on top of the steel and aluminum tariffs that are blowing budgets for new pipelines, chemical plants and LNG export facilities. The management looking to make FID decisions to go forward with these projects must be pulling their hair out.
You're right, Skip. The oil patch is taking a big hit. The longer this bullheadedness continues, the more jobs, the more drilling, the more pipelines, the more petrochemical plants are going to be hurt in Louisiana. Not good.
Sorry to hear it, Bill. The jury is out.
Tariffs were 17th, 18th and 19th century tools to keep things out of someone's market under an expanding global network of trade. Nearly everyone in the world today agree that tariffs are no good. A lot of them even call them TAX'S.