GECF LNG exporters to benefit from US-China trade war

The Doha-based Gas Exporting Countries Forum (GECF) is seeing huge opportunities for its LNG exporting member-countries to secure new demand in 2019-2020, as China has practically blocked US LNG shipments in its fast-growing market by introducing a 25 percent tariff.

In May, China said it would boost the tariff on the US LNG to 25 percent starting June 1 versus the then rate of 10 percent. The move came in retaliation for a US increase in tariffs on $200bn in Chinese goods to 25 percent from 10 percent.

On the impact on the international gas trade and implications for the GECF,  Alexander Apokin, Energy Economics Analyst  at the GECF’s Energy Economics and Forecasting Department (EEFD), noted:: “From 2019 to 2020, when the tariffs could be still active, Chinese LNG imports are expected to grow by 25 Mt, or 18.75 percent of the 2018 global imports.

Tariffs would prevent US LNG from taking that niche, despite the rapid buildup of new LNG capacity. The increase in other Asia Pacific LNG imports is projected to be much less, at 5 Mt in 2019-2020, as Japan and Korea demand is stagnant, and the new US LNG will compete with new projects from Australia and Russia, in addition to existing players.”

Apokin said that LNG imports in China grew by 15.75 Mt (40.4 percent) in 2018 to 54.75 Mt, while US exports increased 8.15 Mt (63.2 percent) to 21.05 Mt in the same period. However, the US exported just four cargoes to China since the period the tariff was in place (September-May), compared to 35 cargoes a year before, when China became the second-largest market for US LNG.

The GECF-member countries can take advantage of this trade gap.

Price was not the only component to this, as Chinese importers reconsidered US supplies even before the 10 percent tariff was introduced. Since February 2018, there were no long-term Sino-US deals, even though Chinese importers signed 7.62 Mt of SPA and HOA (4.5 Mt SPA) for the new deals in 2018-2019 up to date.

In case tariffs stay in place longer, the gap freed up by the US LNG in Chinese market in the medium-term is expected to reach 15 mtpa, though it is expected to be filled mostly with short-term deals pending the result of the trade talks.

Apokin said in his research note on ‘The impact of US-China trade war on the global economy’ that the long and tedious process of US-China trade talks has not moved forward much in Osaka, despite the easing tensions.

There is already a 25 percent tariff on $200bn worth of Chinese goods from the US (29 percent of US imports as of 2018). And the Chinese have retaliated with tariff rates of 20-25 percent on $60bn worth of US exports. US LNG is targeted with a 25 percent tariff rate.”

Although the direct Trump-Xi talks have avoided a new escalation, an agreement is a long way from being reached. Optimism fades as rhetoric intensifies. The latest round of tariff hikes in May exacerbated cyclical threats to economic growth in 2019-2020, and could take an extra 0.2-0.3 percentage points out of global growth in 2019 alone.

The GECF is an international governmental organisation which provides the framework for exchanging experience and information among Member Countries. Qatar is one of the Member Countries.

Source from: The Peninsula