A couple of observations on China’s announcement late last week that it may impose a 25 percent tariff on U.S. shipments of liquefied natural gas (LNG) to that country – which would be in retaliation for announced U.S. tariffs on certain Chinese goods coming into this country.
First, China was the third-largest importer of U.S. LNG in 2017, accounting for nearly 15 percent of our LNG exports, according to the U.S. Energy Information Administration (EIA):
As those numbers indicate, these tariff-related blows exchanged by the two countries could leave a mark as far as U.S. energy exports are concerned. Kyle Isakower, API vice president for regulatory and economic policy said China’s action could impact U.S. jobs that rely directly and indirectly on the energy industry:
“China’s retaliation will hit America’s energy industry particularly hard. … China is the third-largest importer of U.S. LNG, but U.S. LNG makes up only a modest but growing portion of China’s supply portfolio, which suggests that this particular trade dispute will hurt America more than it hurts China.”
WorldOil.com notes that the cost to the U.S. could run into the billions of dollars:
Such a move would be a major blow for America’s emerging business to export the chilled fuel abroad, a key outlet needed for shale supplies growing at a record clip this year. It’s the first time the fuel has been ensnared by the expanding trade war and comes as Russia plans to begin pumping gas to China through its newly-built 2,500-mi Power of Siberia pipeline by the end of 2019. Billions of U.S. dollars may hang in the balance as Cheniere, Tellurian and other developers have been courting utilities and state-backed companies in the Asian country to justify construction of more terminals to ship the super-chilled form of natural gas.
At the same time, it could be a setback for the United States as a competitor in the global LNG marketplace. An analysis in Australia’s Financial Review suggests that the U.S., the world’s fastest-growing LNG exporter, could hand “an edge to rival exporters such as Australia and Papua New Guinea in winning new long-term sales deals …” The analysis quotes Wood Mackenzie’s Giles Farrer:
“It could support development of other projects outside of the US targeting the Chinese market, potentially allowing them to push for higher long-term contract prices.”
The second point is that abundant U.S. natural gas needs markets to continue to grow – domestic markets and overseas markets. The marketing of American natural gas is a part of a more muscular U.S. energy presence around the world, which U.S. Energy Secretary Rick Perry described during a recent visit to Dominion Energy’s LNG export facility at Cove Point, Maryland.
Yet, trade policies that end up limiting U.S. access to important, growing LNG markets in Asia, such as China, would hinder the growth of U.S. natural gas production – and with that, domestic jobs and other economic benefits that go along with increased energy activity here at home.
Unfortunately, that’s the emerging reality as these trade disputes heat up. Certainly, there are trade issues with China and other trading partners. But, as we’ve been saying (see hereand here), tariffs, quotas and the trade skirmishes that can develop from them have the potential for collateral damage.
If U.S. energy exports are restricted – at the same time trade policies have been adopted that increase the cost of the steel our industry uses – there’s a risk of significantly affecting a sector that has been a driving force for economic growth. It’s a big price to pay. Isakower:
“We urge the administration to end these trade policies that work against our own energy interests and threaten our shared goal of maximizing U.S. energy production and U.S. energy exports.”
By Mark Green
Originally posted August 8, 2018
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