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China prepares for life without US LNG - Drewry

Gasoil News - Published on Tue, 16 Oct 2018

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China released a second list of goods which will attract a 10% tariff on imports from the US. Interestingly, LNG did not feature in the first list, but it was included in the second. China also indicated that it may eventually impose a 25% tariff on the US LNG imports. In this piece, we examine how China is preparing to cope without US LNG imports, and what are the implications for US LNG exporters given this recent move.

In 2017, Chinese LNG imports from the US created theoretical demand for just five LNG carriers, so it could be argued that the imposition of a tariff on LNG imports from the US is more symbolic than material. Certainly, imports from the US will be more expensive, as a 10% tariff will push the costs of US LNG to over $11.00/MMBtu. At this price Chinese buyers will look for alternatives, which is precisely the purpose of tariff.

To this end, China is already substituting US LNG with supplies from Qatar and Australia, both of which are shorter shipping distances.

New LNG suppliers are now marketing aggressively to Chinese buyers and to this end Petro China has recently signed an agreement with Qatar Petroleum to buy 3.4 million tonnes of LNG annually for the next 20 years. Qatar Petroleum has also decided to add a fourth liquefaction train and it has lifted its self-imposed moratorium on expansion of LNG liquefaction capacity, which will see its liquefaction capacity rise from 77 mtpa in 2018 to 110 mtpa by 2023.

Some comfort for the US
US LNG suppliers will no doubt regret the loss of Chinese business, but they can take some comfort from the fact that demand for LNG in other Asian countries continues to grow.

In the first half of 2018, Asian importers accounted for 55% of total US LNG exports. US LNG is an attractive option for Asian importers such as India, Japan and South Korea, as US sale and purchase contracts are flexible and are not linked to crude oil prices, which effectively shields LNG sales from wild fluctuations in price.

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Posted By : Nanda Koijam on Tue, 16 Oct 2018
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