China raises US LNG import tariffs to 25%

Wood Mackenzie’s views on the tariff impacts remain largely unchanged from its prior analysis. In August when the tariffs were first announced, Wood Mackenzie identified that the tariffs would have different impacts on short-term and long-term trade. The consultancy clarified this thinking further when the tariffs were introduced, specifically calling out more limited disruption in the short-term. Market activity since these pieces have supported these views.

Short-term

Only four cargoes have been delivered to China from the US since the tariffs have been in effect, compared to 35 cargoes in the prior September through April period. This is despite over 30% growth in both Chinese LNG imports (32%) and US exports (38%) over the same timeframes.

Looking forward, strong supply growth continues to outpace growth in key demand markets through 2020. Global supply will grow by 38 million tpy in 2019 and another 30 million tpy in 2020, while Pacific markets will only grow by 12 million tpy and 16 million tpy in 2019 and 2020, respectively. This market length creates flexibility to redistribute and optimise tradeflows, especially as the US is one of the more distant sources of LNG for China.

The increase from 10% to 25% may reduce flows to China further; however, the absolute value of the tariff is partially offset by falling spot prices in Asia – from over US$10/million Btu when initially introduced to closer to US$5.50/million Btu today.

Long- term

The last long-term contract signed by a Chinese offtaker and US seller was in February 2018 – before the trade war began, when PetroChina signed a 25 year sales and purchase agreement (SPA) with Cheniere.

Since then, Chinese buyers have announced both SPAs and heads of agreements (HOAs) from the rest of the world, including projects in Mozambique and Canada, and portfolio sellers like Qatargas and Petronas. Further detail on these deals is available in LNG contract and tender trends. An ongoing trade war between the US and China will continue to create hesitancy for Chinese buyers to sign up for new long-term volumes.

Read the article online at: https://www.tanksterminals.com/terminals/14052019/china-raises-us-lng-import-tariffs-to-25/