An ongoing two-year long trade war between the US and China that has impacted the exports of both countries seemed to be closer to a resolution in January, when the two rivals sealed a deal that left the Asian nation committed to buy a total of $26.2 billion in energy products this year.
Amid a crisis caused by the coronavirus epidemic, China decided last week to halve the additional tariffs it imposed on $75 billion worth of US goods from September 2019. However, the reduction does not affect the 25% tariff China has imposed on LNG from the US, and Rystad Energy does not consider any such imports commercially viable.
With not a single US cargo sent to a Chinese terminal since the second quarter of 2019, 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, our 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.
Read more in our GasMarketCube.
In the longer term, new LNG projects need to have 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.
Do you want to learn more about the topic? On Thursday, 13th of February, our Head of Gas Market Research, Carlos Torres Diaz will present our latest insights on the hot topics in the LNG market for 2020. Register for the webinar HERE.
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Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. Rystad Energy’s headquarters are located in Oslo, Norway with offices in London, New York, Houston, Aberdeen, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.