Chinese Tariff May Impact Future US Projects: WoodMac

China confirmed September 18 that it will implement a 10% tariff  on US LNG imports, effective September 24.

A panel at the Gastech conference in Barcelona, also September 18, agreed that an initial 10% tariff - rising later to 20% - would put the onus on the buyer to swap out any cargo intended for China for another cargo not from the US that could be delivered tariff-free to China. The panel foresaw higher costs arising from the inefficiencies that circumvention would impose.

China originally on August 3 said it intended to impose a 25% tariff on US LNG cargo imports.

In a comment September 19, consultancy Wood Mackenzie's research director Giles Farrer adds: "The impact on the short term market, is likely to be less than we previously indicated - partly because the level of the tariff is lower than initially proposed, 10% now versus 25% in August, but also because we think China has already completed the majority of its procurement for winter. Possibly because of this, we have recently seen spot and futures prices for winter come down despite strengthening oil prices." He noted that, in the 12 months up until June 2018, China was the second largest buyer of US LNG, amounting to 3mn metric tons of US LNG, with Shell being the largest seller, but that as the US-China trade dispute has escalated, Chinese buyers have gradually reduced their US LNG purchases.

Farrer adds: "If China still needs to procure spot cargoes, we think that this is likely to result in a premium of up to 10% on supply from non-US, lean sources like the Australia east coast projects, Indonesia's Tangguh, Australia's Gorgon, or the Qatari mega-trains. Chinese buyers' appetite to pay significantly higher prices for LNG from other sources may be limited by the price they can sell gas domestically."

Worth noting is that in the past month, so since Beijing first threatened a tariff on US LNG, PetroChina has signed its second large long-term Qatari LNG contract. This new contract, signed by Qatargas with Chinese state-owned PetroChina, is for the supply of 3.4mn mt/yr out to 2040.

WoodMac's research chief adds: "For the long-term market, the consequences are likely to be felt on new supply developments. It restricts the target market for developers of new US LNG projects trying to sign new long-term contracts. However there is still plenty of appetite for second wave US LNG projects from other buyers in Asia and Europe, as evidenced by recent contracting momentum at Freeport, Calcasieu Pass and Sabine Pass Train 6. The first wave of US LNG projects were successful despite not signing contracts with Chinese buyers. It could also support development of other projects outside of the US targeting the Chinese market, including Russia pipeline projects, potentially allowing them to push for higher long-term contract prices."