China's tariff threatens liquefied natural gas boom in the United States

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Cheniere Energie
Inc.

the first US-based LNG export company on the US Gulf Coast hit the headlines because the tariff was less than a 25% levy that China had already threatened. Analysts say the tariff is likely to have an impact on US LNG exporters, making it an early potential victim in the growing trade battle between the US and China.

China is the largest source of new global demand for LNG as the country intensifies its efforts to combat air pollution by switching from coal-fired power stations to natural gas and renewable energy sources. The United States, which is becoming a driving force in the global gas trade, is expected to absorb much of this demand.

But tariffs could now prevent US companies from negotiating long-term contracts, the experts said. The reduction in long-term contracts could help stem a wave of new US export terminal projects. Many countries compete with the United States, with gas becoming a globalized commercial product, including Australia, Qatar and Russia.

"This is a big problem for the gas trade between China and the United States," said Ira Joseph, head of gas and power analysis at S & P Global Platts. "The tariffs will push Chinese buyers to other sellers in Asia and the Middle East, because the United States will no longer be considered a low-cost option."

"The United States can no longer be satisfied with cheap purchases," he said.

According to S & P Global Platts Analytics, a cargo of LNG in October at Sabine Pass in La., Gets 9.04 dollars per million British thermal units in Guandong Dapeng, China. By comparison, a Qatari cargo destined for Guandong Dapeng costs $ 10.48 per million British thermal units. A tariff of 10% would make the price of the United States less competitive.

Trevor Sikorski, head of natural gas research at Energy Aspects, said tariff changes could derail some of the new export terminals in the United States.

"The long-term implication is that Chinese money is likely to turn to the countries it can rely on for gas supply – and that's good news for most new non-US LNG projects" , did he declare. "The LNG infrastructure proposed by the United States is the biggest loser.

US oil and gas producers were eagerly awaiting new export projects, which would create a new demand for natural gas that kept the US benchmark price below $ 4 per million dollars. British thermal units for years. Natural gas futures for October delivery were trading Tuesday at about $ 2.88 per million British thermal units on the New York Mercantile Exchange.

More than a dozen projects are awaiting regulatory approval in the United States, although analysts believe that a handful of them are likely to be approved before the end of 2019. If Chinese buyers are less willing to buy US LNG, it may be more difficult for US exporters to fund projects, which cost billions of dollars each to build.

The tariff fight could also hurt prospects for long-term contracts, which are common in the sector. A number of legacy contracts are coming to an end in the next few years, creating an opportunity for US producers.

In February, Cheniere signed two major supply agreements with China National Petroleum Corp. until 2043. But the new tariffs may jeopardize long-term agreements, favored in part by suppliers, as they help finance expensive liquefaction facilities. .

Producers such as Qatar have large volumes of unsold LNG in the 2020s, which means that any ride in the trade could offer an opportunity to US competitors. Last week, Mr. Qatargas announced that he had reached a 22-year agreement with PetroChina International Co.

"It seems very unlikely that a Chinese company is planning to sign long-term LNG contracts in the United States," Sikorski said.

However, some investors hailed the fact that tariffs were lower than those China had threatened, analysts said. Cheniere shares rose more than 2% on Tuesday, and shares of former exporter Tellurian Inc. also rose. Cheniere declined to comment on Tuesday.

"Over time, business problems will be resolved and we expect the Chinese market to continue to grow," said Meg Gentle, Tellurian's Managing Director.

Katie Bays, an analyst at Height Securities LLC, said Cheniere's stock price rise reflected Chinese buyers' reliance on the on-site LNG cargo market, with US supply accounting for about 25 percent. . Chinese companies had already bought American shipments before the winter and a higher price would have been punitive for them, she added.

"Supporting the tariff rate of 25% to 10% was a sign for the market that China recognized how dependent it was on imported LNG and imported US LNG," Bays said.

Write to Georgi Kantchev at [email protected] and Christopher M. Matthews at [email protected]