By Elchin Mammadov, Bloomberg Intelligence
This article is also by contributing analyst Talon Custer from Bloomberg Intelligence.
The escalation of trade tensions between Washington and Beijing is likely to hurt U.S. LNG exporters (Cheniere Energy, Energy Transfer, Tellurian, NextDecade) in the long run. It's also likely to lift the costs for Chinese gas buyers (Sinopec, PetroChina, Cnooc, ENN), which will need to pay a premium for swapping cargoes.
China lifting tariffs on U.S. LNG won't hurt right away
China plans to increase tariffs on LNG imports from the U.S. to 25% starting June 1, retaliating after Washington raised levies on $200 billion worth of purchased goods originating from China and plans by Trump administration to introduce duties on an additional $325 billion of imports from the country. In the short-term, this is unlikely to further hurt U.S. LNG exporters, as their shipments to China have already plummeted in the wake of Beijing raising tariffs on U.S. LNG to 10% in September 2018.
Trade tensions to hurt U.S. LNG in long run
The Sino-American trade tensions are likely in the long run to hurt Cheniere Energy, Energy Transfer, Tellurian, NextDecade and other U.S. LNG exporters seeking to build new liquefaction plants. Despite the recent deal between China Gas Holdings and Delfin LNG, prospective buyers from China -- soon to become the biggest importing country globally -- may generally be reluctant to sign long-term purchase contracts with developers of future U.S. gas liquefaction projects until politicians resolve the wider trade dispute. Such offtake contracts are often essential for the developers needing to secure financing for their projects.
Chinese LNG importers face higher fuel costs
The move by China to increase tariffs on U.S. LNG to 25% from 10% would lift the costs for China National Offshore Oil Corp., China National Petroleum Corp., Sinopec and other gas importers by 5-15%, in our view. This may also pressure their margins if they can't pass on these costs to customers. Chinese gas buyers with offtake agreements for U.S. LNG (Petrochina, Sinopec) will likely have to pay premiums to swap U.S. LNG for other liquid gas from other sources. Just like China's three national oil companies, ENN, Guanghui Energy, Beijing Gas Group, Huadian Corp, China Gas Holdings and Jovo Group may also face higher gas costs.
