China likely to shun US LNG despite multi-billion trade deal

Amid a crisis caused by the coronavirus epidemic, China recently decided to halve the additional tariffs it imposed on US$75 billion worth of US goods from September 2019. However, this reduction has not affected the 25% tariff imposed on US LNG, and Rystad Energy does not consider any such imports commercially viable.

With not a single US cargo sent to a Chinese terminal since 2Q19, Rystad Energy estimates that LNG imports will restart only once the tariffs are lifted or if political support is offered by the Chinese government.

Rystad Energy expects a reduction or even a complete removal of tariffs on imports of US LNG. Nevertheless, the company’s calculations show that volumes will most likely remain relatively low, due to both the cost-competitiveness of other global supplies and to the coronavirus epidemic’s effect on Chinese LNG demand.

To calculate the volumes, Rystad Energy identified three scenarios, the most conservative of which (low case) is thought to be the most likely outcome:

• Low case: LNG imports in 2020 are kept at the 2018 level of around 2.5 million t, valued at US$1 billion.
• Middle case: In 2017, before the trade war started, LNG represented 8% of all US energy product sales to China. Applying the same percentage would see China import 5.27 million t of US LNG for a total value of US$2.2 billion in 2020.
• High case: The trade agreement did not specify any amounts of particular energy products such as crude oil, LNG, refined products and coal. As a result, LNG and especially crude oil, which will get a 2.5% tariff cut from February, could account for a larger proportion of Chinese energy purchases to meet the agreed target. LNG imports could potentially reach 8.4 million t, worth US$3.5 billion in 2020.

In the longer term, new LNG projects need to have long term contracts to secure financing for development, and the imports-reliant Chinese market will continue to be among the biggest sponsors for new developments – although probably very limited in the US, said Xi Nan, Vice President for Gas and Power Markets at Rystad Energy.

“The cost of supply for new US projects is not as competitive as in Qatar, Mozambique and Australia, which gives Chinese buyers more commercial incentives to sign new contracts with non-US suppliers,” she said.

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/12022020/china-likely-to-shun-us-lng-despite-multi-billion-trade-deal/