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article imageEscalating trade war with China puts U.S. LNG exports at risk

By Karen Graham     Sep 18, 2018 in Business
China on Tuesday vowed to retaliate against the United States after President Donald Trump targeted another $200 billion in Chinese imports with tariffs starting next week, a move that puts the LNG industry at risk.
Oil and gas should be left out of the escalating trade dispute between the U.S. and China, global energy executives told CNBC on Tuesday.
“One of the things that could be damaging for the LNG (liquefied natural gas) industry in the U.S. is the taxes that could be levied on them by China and others,” Saad Sherida Al-Kaabi, the chief executive of Qatar Petroleum, the biggest LNG exporter in the world, said.
CNBC's Steve Sedgwick was at the Gastech conference in Barcelona where the discussion took place on Tuesday. “I think it needs to be looked at carefully because I don’t think it’s to the benefit of the oil and gas industry to have politics and taxation enter into this (trade dispute),” he said.
And China may very well target liquefied natural gas in retaliation for Trump's latest round of tariffs. The new round of levies will bring the number of goods hit by duties to roughly half of Chinese exports to the US. Trump also threatened to go after all Chinese goods.
Bloomberg is reporting that last month, Beijing said it was considering a 25 percent tariff on the fuel. As of Tuesday, China has yet to provide any details, but if the Asian nation does apply tariffs to U.S. exports of LNG, it will hurt the industry in both countries.
Tariffs do not appear to have dented the appetite for Chinese-made products in the United States
Tariffs do not appear to have dented the appetite for Chinese-made products in the United States
Booming demand for LNG
The U.S. LNG industry is already under pressure in competing with Russia, Australia, and Qatar for market share in China, the world's biggest LNG buyer. As for Trump? He risks stifling the U.S. LNG export industry, which is seeking an estimated $139 billion to fund more than a dozen projects.
“Chinese companies will have an aversion to investing in U.S. LNG projects in the short term” if tariffs are imposed, said Saul Kavonic, Credit Suisse Group AG’s director of Asia energy research. “Australia and Qatar’s LNG sectors will benefit from being seen as a lower risk source of supply by customers in the world’s fastest growing LNG market, at least over the near term.”
In its 2018 annual Gas report, the International Energy Agency (IEA) said global LNG exports will increase 30 percent by 2023 with the U.S. expected to become the second largest supplier in the world. But as Al-Kaabi noted, while tariffs on U.S. LNG exports to China might help his company, overall, they would have a "negative impact on the industry."
“It could serve Qatar to be more competitive, in comparison with the U.S., when some of the countries put taxes on U.S. LNG — but I don’t think long-term that it’s good for the market to have politics and to have taxation on a very important basic requirement for humanity, which is energy.”
The problem is this - Most LNG cargoes are sold at a price linked to oil, however, U.S. LNG is priced off domestic gas prices, which have declined about 4 percent this year. So this escalation of the trade war comes at a time when U.S. gas has become cheaper than oil-linked cargoes and the possibility of crude oil prices continuing to rise over the next few years.
Bloomberg points out this trade war and the new tariffs will be an "especially cruel blow for companies backing prospective U.S. liquefied natural gas export terminals, including Tellurian Inc., Liquefied Natural Gas Ltd., and Pembina Pipeline Corp."
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