Chinese state-backed energy firms and privately controlled gas distributors may have to renegotiate long-term liquefied natural gas (LNG) procurement contracts they signed with US providers if the trade war drags on, according to analysts.
Trade flows of US LNG to China have stopped since February 10 when Beijing retaliated against a 10 per cent US tariff on Chinese goods by slapping a 15 per cent duty on the fuel, S&P Global Commodity Insights principal research analyst Li Lunjia said on Tuesday. The tariff on US LNG was subsequently raised to at least 140 per cent on April 12.
“During the first 2018-19 US-China trade war, tariffs on US LNG lasted for 18 months,” she said during a webinar. “Similar to last time, we can expect to see the suspension of US LNG imports and contracting activities for as long as the current tariffs remain in place.”
However, Chinese buyers now held much more contracted US LNG than during the last conflict, when nearly all of it was traded on a short-term basis on the spot market, Li said.
Although the US supplied only 4.4 per cent of China’s total LNG imports in the past three years, during which only 3.8 per cent of US LNG exports went to China, the volumes were intended to grow rapidly in coming years, Li said. Chinese buyers now held 21 long-term procurement contracts with US producers covering 25.6 million tonnes of annual volume, she added.
In the short term, the vast majority of the 5.7 million tonnes expected to be delivered this year to Chinese clients could easily be re-sold to buyers in other markets.
