Impact of the Trade War Escalation on U.S. LNG

T he fresh escalation in trade tensions between the U.S and China has led to the Chinese administration announcing an increase on the tariff applied to U.S. LNG from 10% to 25%, applicable from the 1st June. This will have two principal effects: The tariff will serve to make U.S. spot cargoes less competitive, with short run breakevens increasing. However, even before the higher tariffs, U.S. LNG exports to China had all but dried up, with Chinese buyers choosing to avoid U.S. spot cargoes and buy from elsewhere. Looking forward, Chinese imports of U.S. LNG can be expected to be minimal while tariffs remain in plac e and the market remains oversupplied. It will be much more difficult for Chinese buyers to commit to long-term supply contracts or take equity stakes in U.S. export projects, with instability on the geopolitical front limiting their appetite to invest in the U.S. As a result, China will shift its long-term LNG procurement away from the U.S. to the benefit of Russia, Qatar, and other countries vying to bring on new supply in the coming decade. For the projects in the U.S., this reluctance to sign offtake agreements is likely to lead to further delays , as China’s uncontracted LNG niche mak es state owned gas marketers the king makers in the current round of LNG project FID s .