The size of US LNG exports to China reached a record high in 2017, but has dropped to zero so far in 2019. China said Monday that from June 1, the LNG tariff rate on imports from the United States will be raised from the current 10% to 25%, as a countermeasure against the $200 billion tariff increase on imports of Chinese goods last week by the United States.
Analysts warned that tariff hikes prevented Chinese customers from signing long-term agreements with U.S. suppliers, leading banks and investors to be reluctant to finance projects under construction. The use of natural gas in power plants around the world is heating up rapidly as countries such as China try to get rid of the more polluting coal energy sources, but natural gas still accounts for only a small part of the overall fuel application.
According to the Energy Information Association (EIA), global demand for natural gas is expected to increase from 340 billion cubic feet per day in 2015 to 485 billion cubic feet per day in 2040, with more than a quarter of the increase contributed by China.
Six U.S. LNG projects are currently under construction. In addition, more than 20 projects are still looking for customers to satisfy potential investors before they can break ground. If the tariff action lasts for a long time, it is unlikely that these projects will be put into operation.
Chinese buyers have begun to sign agreements with other suppliers. This makes it more difficult for U.S. suppliers planning to build the next generation of LNG export projects to find customers.
"As long as the trade war continues, [Chinese natural gas users] will be interested in signing new agreements with U.S. projects," said Sindre Knutsson, senior analyst with Rystad Energy's natural gas market team.
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