US-China trade war disrupts LNG contracts

[WORLD] Analysts suggest that Chinese state-owned energy companies and private gas suppliers might need to renegotiate their long-term liquefied natural gas (LNG) contracts with US suppliers if the trade war continues. Last year, the US accounted for just 3 percent of China’s natural gas imports, a figure that could now drop to zero due to the trade war. According to S&P Global Commodity Insights principal research analyst Li Lunjia, trade flows of US LNG to China ceased on February 10, when Beijing imposed a 15 percent tariff on the fuel in retaliation for a 10 percent US tariff on Chinese goods. The tariff on US LNG was later raised to at least 140 percent on April 12.

Data from China’s customs agency indicates that China’s LNG imports from the US had already significantly declined from November to January. Instead, China increased its purchases from Russia, which supplied four times as much LNG to China last year as the US did. When Beijing imposed tariffs on American fossil fuels in response to President Trump’s initial 10 percent tariffs on Chinese goods, only two US LNG cargo ships were en route to China. One ship arrived before the tariffs took effect and unloaded its cargo, while the other diverted to Bangladesh to avoid the tariff, according to Kpler, a Belgian energy data company.

The declaration of force majeure by Chinese buyers occurs at a difficult time for LNG markets, with new supplies coming online and demand growth slowing. The spread of the coronavirus has weakened global demand, making it hard for sellers to redirect cargoes amid high global stock levels. This has led to potential shut-ins later this year and the possible deferral of new final investment decisions (FIDs). India stands out as a positive exception, with LNG buyers reportedly tendering for up to 67 cargoes by the end of February, taking advantage of lower spot LNG prices.

The current standstill in US-China energy cooperation marks a significant escalation in the trade war’s impact. For years, the two countries have engaged in substantial energy trade, with the US exporting LNG and oil, and China supplying raw materials and rare earth elements vital for energy production. This mutually beneficial relationship is now at risk. Several high-profile projects, including long-term LNG supply contracts and renewable energy investments, have been put on hold, causing a ripple effect across the industry.

“During the first 2018-19 US-China trade war, tariffs on US LNG lasted for 18 months,” Li Lunjia said during a webinar. “Similar to last time, we can expect the suspension of US LNG imports and contracting activities for as long as the current tariffs remain in place.”