China levies 25% tariff on US LNG imports (Correction)
(Corrects and expands earlier report)
China has responded to the US threat to impose tariffs on Chinese imports by announcing August 3 that it would impose a similar 25% tariff on US imports worth $60bn – including LNG.
The move came just two days after US president, Donald Trump, directed his trade officials to consider increasing the tariff on $200bn of Chinese imports to 25% from the 10% rate already imposed.
“The US measures are indiscriminately violating the relevant rules and international obligations of the World Trade Organization, further infringing on the legitimate rights and interests enjoyed by China in accordance with the rules of the World Trade Organization, and seriously threatening China's economic interests and security,” China’s ministry of commerce said in a statement published on its website. Tariffs ranging from 5% to 25% will be imposed on 5,207 “tax items” originating in the US, the statement said.
If both the US and China carry through with their plans, global consultancy Wood Mackenzie said, there will be “considerable short-term and long-term implications” for both countries.
“In the short term, the tariff would likely raise LNG prices,” Giles Farrer, research director, global gas and LNG supply for Wood Mackenzie, said. “Chinese buyers would bear the burden of the tariff because there is enough demand outside of China for US LNG. Meanwhile, the impact on Chinese gas demand is likely to be limited as Chinese end user pricing is not related to LNG pricing.”
Although on stream and under construction US LNG projects will not likely be affected by the tariffs, US LNG with the tariff added would become the marginal supply in China, Farrer added. Longer-term impacts, however, could be broader, and add support for projects outside the US looking to attract Chinese buyers.
“Long-term market consequences are likely to be felt on new supply developments as it would restrict the target market for developers of new US LNG projects trying to find new long-term contracts,” he said. “However, as plenty of appetite exists from other buyers in Asia and Europe for second wave US LNG projects, this is unlikely to be terminal.”
According to WoodMac, in the 12 months to June 2018, a total of 42 cargoes were exported to China, roughly 3mn metric tons, all from Cheniere's Sabine Pass terminal on the US Gulf Coast. In this period, China was the second biggest export market for US LNG after South Korea. Shell was the biggest supplier of US LNG to China.
Chinese LNG imports of all origins during January-June 2018 were 23.8mn mt, up 50% year on year. Its strong demand has contributed to a recent steep rise in LNG shipping rates.