China plans to impose a 10 percent tariff on U.S. liquefied natural gas as part of an escalating trade battle between the two countries, hindering export opportunities for a emerging industry that is growing rapidly along the Gulf Coast.
The move, made in retaliation against the Trump administration’s latest tariffs on $200 billion in Chinese imports, affects $60 billion in U.S. exports to China. The 10 percent tariff on LNG is less than the 25 percent proposed early last month, but it’s still expected to undercut the competitiveness of U.S. exporters vying for a share of one of the world’s largest LNG markets.
“The consequences are likely to be felt on new supply developments,” said Giles Farrer, research director for Wood Mackenzie. “It restricts the target market for developers of new U.S. LNG projects trying to sign new long-term contracts.”
A number of U.S. developers, including Houston companies Cheniere Energy and Tellurian Inc., are investing billions of dollars to build massive export terminals along the Gulf Coast, which has ready access to cheap and plentiful natural gas from West Texas and elsewhere.
The Federal Energy Regulatory Commission is pushing to expedite its reviews of new U.S. projects, most of which are planned for the Gulf Coast. The agency earlier this month issued regulatory schedules for its environmental review of 12 LNG export facilities, including six in Texas.
The proposed projects put the U.S. on track to supply nearly a quarter of global LNG by 2030, according to Wood Mackenzie.
China, which is working to shift its power generation from coal to cleaner-burning natural gas, has emerged as a major source of demand. In the year prior to June, the country was the second largest buyer of U.S. LNG.
Farrer expect the tariffs to change that dynamic. Already, he said, Chinese buyers have gradually reduced purchases of U.S. LNG amid the trade dispute.
However, he expects growing demand outside of China to support the next wave of U.S. LNG projects. Other countries in Asia and Europe also need more natural gas as they reduce their use of coal.
“There is still plenty of appetite for second wave U.S. LNG projects from other buyers,” Farrer said.
Cheniere was the first U.S. company to export LNG, operating from its Sabine Pass terminal in Louisiana. The company, which now ships to nearly 30 foreign markets, is expanding that terminal and building a second one in Corpus Christi.
The company earlier this year struck a deal to sell LNG to China National Petroleum Corp. as part of two sales contracts that extend through 2043.
Virginia’s Dominion Energy also began exporting LNG from a terminal in Maryland earlier this year.
Other U.S. companies are expected to begin exports next year, including two based in Houston. Freeport LNG is working to open its Gulf Coast terminal at Quintana Island, and Kinder Morgan is completing an export terminal in Georgia.
Sea News, September 20