US LNG exporters face headwinds due to trade war with China

This week, China said it would raise tariffs on American liquefied natural gas (LNG) imports to 25 percent on June 1 from the current rate of 10 percent in retaliation against the United States’ tariff increase on USD $200 billion of Chinese goods last week. The tariffs may discourage Chinese customers from signing long-term LNG deals with American suppliers, resulting in banks and investors being less willing to finance projects under development.

There are currently six American LNG projects with units under construction, in addition to more than two dozen others seeking customers to satisfy potential investors before they can break ground. These projects may be likely to come to fruition if tariffs remain in place for an extended period. Chinese buyers have started signing deals with other suppliers, complicating US developers’ search and to start building the next generation of LNG export plants. However, major US suppliers believe low American natural gas prices will attract enough customers to justify funding new export projects, regardless of what China does.

China is among the countries rapidly increasing their natural gas use for power generation as they to wean themselves off coal, but 2017 saw the peak of Chinese imports of US LNG shipments, which has dropped to next to nothing this year so far. Prior to the US – China trade war igniting in July 2018, China was the third largest buyer of American LNG, however this year, China has not made it to the top 15, with only two US shipments reaching the country.

The U.S. Energy Information Administration (EIA) says world demand for natural gas is expected to grow from 340 billion cubic feet per day (bcfd) in 2015 to 485 bcfd by 2040 with China accounting for more than a quarter of that growth. US LNG exports are expected to nearly quadruple to 86 MTPA by 2025, equivalent to about 11.4 bcfd of natural gas, according to EIA projections, which is enough for about 55 million American homes every day.