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Maritime Research

China prepares for life without US LNG

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On 24 September, 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.

A symbolic gesture?

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.

Asian (Japan) LNG import prices by source : August 2018 ($ per MMBtu)

Asian (Japan) LNG import prices by source : August 2018 ($ per MMBtu)

New suppliers to China

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

China's LNG imports (million tonnes)

China's LNG imports (million tonnes)

Source: Drewry Maritime Research

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.

US Asian LNG Shipments

US Asian LNG Shipments

While there is a clear trend that US LNG movements to China have declined in 2018, there is equally a trend of growing US exports to other Asian destinations. We see Taiwan and South Korea as the main growth markets for US LNG, and growth in trade on these routes will more than compensate for reduced trade between the US and China.

Contact

Shefali Shokeen

Shefali Shokeen

Senior Research Analyst, Drewry Maritime Research

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