US LNG growth could be hurt by Chinese tariffs

The burgeoning US LNG export industry would likely be slowed if China carries out its threat to impose a 25pc tariff on US LNG imports, a number of industry officials said today.

"The administration's energy dominance and new energy realism agendas will cease to exist if one of the largest energy markets in the world is preemptively placing tariffs on [US] LNG," said Charlie Riedl, executive of the Washington, DC-based industry advocacy group Center for LNG.

"China has a growing demand for LNG and is slated to become the world's largest importer," Riedl added. "Should these tariffs remain, China will source the LNG from other suppliers eager to fill the gap."

The Center for LNG, as well as Washington, DC-based industry groups LNG Allies and the American Petroleum Institute, urged Trump to quickly resolve the dispute, especially since the administration has frequently touted the importance of US LNG exports in creating jobs and reducing the country's trade deficit.

A White House spokesperson would only say that "instead of retaliating, China should address the longstanding concerns about its unfair trading practices."

Six large LNG projects are being completed in the contiguous US with combined baseload capacity of about 68mn t/yr, equivalent to 9.3 Bcf/d (93bn m³/yr) of gas. China is widely regarded as the most important market for a second wave of US LNG export projects expected to be built in the early to mid-2020s, as the Asian country likely will significantly increase its LNG imports to reduce air pollution with coal-to-gas switching. China earlier this year left LNG off a list of US commodities on which it was considering imposing tariffs, a move that was widely seen as China's acknowledgment of the importance of US LNG to its economy and environment.

But the Chinese government said today that it is preparing to impose tariffs on $60bn/yr of US imports, including LNG. The US accounted for just 4pc of China's LNG imports in March, according to Chinese customs data. But China took a fifth of US LNG exports last year, and shipments will begin this year under a 1.2mn t/yr contract between Chinese state-owned CNPC and Houston-based Cheniere Energy, owner of the Sabine Pass LNG terminal in Louisiana that started exporting in February 2016.

While other major Asian LNG-importing nations such as Japan and South Korea have signed a number of long-term deals for US LNG, China has so far only signed the deal with Cheniere, making that country the strongest growth market for US LNG. Multi-billion-dollar US LNG projects likely would need to make funding decisions in the next two years to come on line by early to mid-2020s, so Chinese tariffs could significantly slow or thwart such projects.

Cheniere is negotiating with Chinese customers to potentially expand its Sabine Pass and Corpus Christi, Texas, LNG terminals.

"While we are waiting on details of the recent announcement and do not view tariffs as productive, Cheniere continues to see China as an important growth market and LNG as a win-win between the United States and China, as evidenced by the American jobs and investment created from the recent decision to build train three at our Corpus Christi facility, which was commercialized in part by a US LNG to China deal," the company told Argus.

The proposed $4.35bn Magnolia LNG project in Louisiana, which needs to sign more long-term offtake deals to get financed, said "we will continue to work with Chinese buyers."

Magnolia said it expected China to place US LNG on its tariff last and "maybe now this gets everyone to the negotiating table to find a mutually beneficial solution. Chinese buyers and US exporters want this resolved."

Charif Souki, chairman of US LNG developer Tellurian and former chief executive of Cheniere, said tariffs would not slow China's appetite for US LNG. But much of the market seemed to think otherwise, as this afternoon Tellurian's share prices dropped 5.2pc from the previous day.

"American gas doesn't come with a made in America label on the molecules," Souki told Argus. "I'm not sure how a tariff on a commodity works but we are watching in fascination. This will not affect the trade but will simply make gas more expensive to Chinese consumers."