Chinese decision to impose 25% duty on US imports worth 60 billion USD will inevitably impact the energy market, as US LNG is also on the list of targeted products. The move of China has caused general perplexity when it declined to add the commodity to the list of products. So far, the Asian country has been looking at natural gas as a means of tackling the problem of air cleanliness and the reduction of emissions.
Things have changed since the trade war with the United States has escalated dramatically in recent weeks and many analysts doubting that Beijing will afford to hit US gas supplies.
The United States is the largest natural gas producer in the world and one of the leading exporters of LNG. If the Chinese duties on LNG are adopted, it will cause serious disruption to US gas production, as well as President Donald Trump’s plans. The geopolitical dynamics will undermine US exporters’ attempts to become dominant in the China energy market.
China is one of the largest liquefied gas importers. It is expected the country to top the list in 2019.
In 2017, about 15% of US LNG was shipped to China.
The current stagnation is a sharp change in the situation since the beginning of the year, when Beijing proposed to the US to buy more gas to reduce the massive bilateral trade deficit.
Now this seems to be a distant prospect, given the failure of high-level talks and threats of retaliation between the two world economies.
Some analysts believe the rise of US liquefied gas is something that can not be stopped – with or without China’s intervention.
At present, most US gas exports are secured by long-term contracts, so that the impact of any Chinese customs duties will be limited to at least the expiration of contractual deadlines. Still, the LNG market will be affected as well as negotiations on new contracts.
Chinese liquefied gas customers told that energy companies will be deterred from ordering US fuel in the near future, as the duties imposed will raise prices to a level they can not afford.
Fitch Solutions said it expects major LNG customers such as Shell, Total and Trafigura will be hit hardest as they act as a mediator between US LNG manufacturers and consumer markets, where gas demand and prices are highest.