Wood Mackenzie discusses US-China trade war
Published by David Rowlands,
Last week, the US increased tariffs on Chinese imports. Today, China has announced that it will assess a 25% tariff on US LNG as of 1 June this year. This is an increase from the 10% level instituted in September last year.
Wood Mackenzie says that its views on the tariff impacts are mostly unchanged from its previous analysis. In August, which is when the tariffs were initially announced, the consultancy noted that the tariffs would have different impacts on short-term trade than on long-term trade. Wood Mackenzie clarified this stance when the tariffs were introduced, specifically noting that there would be limited disruption in the short-term. Market activity since then has lent support to these views.
In the short-term, Wood Mackenzie claims that just four cargoes have been delivered to China from the US since the tariffs were put in place. This compares to 35 cargoes in the previous September – April period. Reportedly, this is despite over 30% growth in both Chinese LNG imports (32%) and US exports (38%) over the same periods.
The consultancy goes on to say that, going forward, strong supply growth continues to outpace growth in key markets through next year. Global supply markets will reportedly increase by 38 million tpy this year, and by another 30 million tpy next year. Pacific markets, meanwhile, will only grow by 12 million tpy this year, and 16 million tpy this year. Wood Mackenzie says that this market length creates flexibility to both redistribute and optimise tradeflows, particularly as the US is one of China’s more distant sources of LNG.
The consultancy claims that the increase from 10% to 25% could decrease flows to China even further. Nevertheless, it goes on to say that the absolute value of the tariff is partially offset by falling spot prices in Asia – from over US$10/million Btu when originally introduced to closer to US$5.50/million Btu today.
In the long-term, however, Wood Mackenzie has a slightly different view.
The last long-term contract agreed between a US seller and a Chinese buyer was last year before the trade war began (PetroChina’s 25-year SPA with Cheniere).
Since then, China has announced a number of SPAs and HOAs with companies from the rest of the world, such as in Mozambique, Canada and Qatar. An on going trade war between the two nations will continue to lead to hesitancy on Chinese buyers’ part to sign up for new long-term contracts.
Read the article online at: https://www.lngindustry.com/regasification/14052019/wood-mackenzie-discusses-us-china-trade-war/
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