China is proposing a 25 percent tariff on imports of U.S. liquefied natural gas as retaliation for the Trump administration’s latest threat to impose levies on the Asian giant, a major blow to an emerging American business.
It’s the first time the fuel has been ensnared by the expanding trade war, which comes as Russia plans to begin pumping gas to China through its newly-built 2,500-mile (4,000 kilometer) Power of Siberia pipeline by the end of 2019. LNG exports have provided a key outlet for shale supplies growing at a record clip this year.
Billions of U.S. dollars may hang in the balance. Cheniere, Tellurian Inc. and other LNG 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. The shares of America’s largest gas exporter, Cheniere Energy Inc., fell on the report.
“At least in the short term any Chinese buyer looking for long-term supply would have to drag their feet on signing a U.S. contract,” Jason Feer, head of business intelligence at Poten & Partners Inc. in Houston, said by telephone.
China accounted for 13 percent of the exports from Cheniere’s Sabine Pass terminal in Louisiana as of mid-June, based on ship-tracking data compiled by Bloomberg. The Houston-based company dropped as much as 7.7 percent after the report, the biggest one-day percentage decline since 2016, while Tellurian slid as much as 6.7 percent.
Cheniere and Tellurian didn’t immediately respond to requests for comment. Cheniere recently gave the green light to expand its Texas export terminal, thanks in part to a contract it signed earlier this year with China National Petroleum Corp., according to a company statement.
Earlier this year, China emerged as the world’s biggest gas importer, topping Japan, as it aggressively moves to reduce its reliance on smog-inducing coal.
With China’s traditional suppliers in Central Asia unable to keep up with demand during the recent winter, Cheniere moved to help fill the gap. Since 2016, when its Sabine Pass export terminal opened in Louisiana, Cheniere had shipped about 50 supertankers filled with the super-chilled fuel to China as of the end of June, with the majority of it moving after the cold weather kicked in.
Warren Patterson, commodity strategist for ING Bank NV, said he was “quite surprised” to see LNG show up on China’s list.
“Given the transition we are seeing in China, with a move away from coal towards natural gas, I would have thought that the government would have wanted to ensure adequate supply,” Patterson said in an email.
Gas exports overall to China jumped 17 percent last year to 92 billion cubic meters, and they’re poised to hit 200 billion by 2025, according to Massimo Di Odoardo, vice president of global gas and LNG at Wood Mackenzie Ltd. in London.Assuming the tariffs “go into effect, this is a pretty dramatic move by China,” David Lang, global head of LNG at law firm Baker & McKenzie LLP, said by phone. “This has a real impact on prospective deals,” and could affect the next wave of U.S. LNG export projects, he said.
“It certainly adds to the risk of delay for these projects,” Lang said.
Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.
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