US LNG sellers, developers view China-imposed tariffs as threat, unproductive

03 August 2018 20:19 Source:ICIS News

HOUSTON (ICIS)--US liquefied natural gas (LNG) companies and advocates said that the announcement by China’s finance ministry on its intent to impose a 25% tariff on US LNG is detrimental for the industry, although timing of imposing the tariffs are unclear.

The Chinese ministry’s said it was responding to the 10 July decision by the US government to impose tariffs of 10% on Chinese goods, as well as the further announcement this week by US trade representative Robert Lighthizer on an additional set of tariffs being considered.

The ministry said the US was violating the rules and obligations of the World Trade Organization and threatening China’s economic interests and security.

On 1 August, Lighthizer said that in addition to the tariffs announced in July, another level of tariffs between 10% and 25% could be considered. The 25% duty would be applied on the list of products previously announced in July.

The announcement on 3 August by China has now escalated tensions between the US and China, as US LNG exports are now ramping up to become a global supplier.

A Friday statement by the US-based trade association Center for LNG said that tariffs were bad for both consumers and producers and free trade can help expand LNG exports to China.

“The domestic benefits of LNG exports are muted when the market is distorted with tariffs, especially when imposed by a country that has imported more than 185bn cubic feet of US natural gas to date and is the third-largest buyer of US LNG,” said CLNG executive director Charlie Riedl.

The US currently allows for companies to sell LNG to China, but companies must receive regulatory approval from the Department of Energy (DOE) to sell to non-free trade agreement (non-FTA) nations, which include China, Japan and Europe.

Fred H Hutchison, president of the trade group LNG Allies, said the move by the Chinese to add LNG to the list of retaliatory tariffs was unwelcome but not a wholly unexpected development.

“It is imperative that the United States and China begin serious, high-level negotiations to resolve the complicated issues – which, by the way, are wholly unrelated to energy – that lie beneath the current tariff dispute,” he said in a statement.

China has been the third-biggest importer of US LNG so far this year, behind South Korea at about 2.8mtpa and Mexico importing 2.3mtpa, according to January-July figures from LNG Edge.

Given that the announcement by the Chinese government did not impose a timeline on when the tariffs could be imposed, it is unclear how soon the tariffs could affect the spot market, but the retaliatory tariffs likely adds another freeze on ongoing commercial discussions between US LNG developers looking to market long-term contracts with Chinese customers.

US LNG producer Cheniere operates the four-train, 18mtpa nameplate capacity Sabine Pass plant in Louisiana, and is constructing its second project in Corpus Christi in south Texas. Cheniere signed contracts with China National Petroleum Corporation, through its subsidiary PetroChina, earlier this year.

“While we are waiting on details of the recent announcement and do not view tariffs as productive, Cheniere continues to see China as an important growth market and LNG as a ‘win-win’ between the United States and China, as evidenced by the American jobs and investment created from the recent decision to build train three at our Corpus Christi facility, which was commercialized in part by a US LNG to China deal,” a spokesperson for Cheniere said.

LNG developer Tellurian, which is aspiring to develop two greenfield LNG projects in Louisiana, also questioned how the tariff would be implemented.

“American gas doesn’t come with a ‘Made in America’ label on the molecules.  I’m not sure how a tariff on a commodity works but we are watching in fascination,” said Tellurian chairman Charif Souki. “This will not affect the trade but will simply make gas more expensive to Chinese consumers.”

Market sources in the US said the announcement by China was not a positive sign but hoped that the US would find an agreement to prevent a trade war.

“China’s retaliation will hit America’s energy industry particularly hard,” said American Petroleum Institute (API) Vice President for Regulatory and Economic Policy Kyle Isakower.

“American natural gas and oil companies already hit by US tariffs on industrial products and specialty steel essential to our industry will now be faced with Chinese tariffs on critical US exports, impacting American jobs that rely directly and indirectly on the energy industry.”

The American Chemistry Council (ACC) said on Friday that of the 5,207 products across the four Chinese tariff lists, 999 are chemical and plastics.

Source: American Chemistry Council (ACC)

(releads and adds paragraphs 6-20)

Click here to view related stories and content on the US-China trade war landing page.

By Ruth Liao