The US-Chinese trade war intensifies just when Sabine Pass Train 5, Corpus Christi Train 1 and Elba
Island’s first micro units are slated to begin production. Energy Aspects anticipates China might well cut its US imports down to zero, but the location swap of LNG cargoes between Japan, Korea and China will cushion the impact of Chinese tariffs on the demand for US LNG.
Destination swaps in the making
JERA, Japan’s largest LNG buyer, has boosted its trading capabilities by entering an LNG optimization and trading joint venture with EDF of France. Though Japan does offtake substantial volumes of US gas, it takes much more from Australia under contracts with a fixed destination clause.
But pressure is mounting from Japanese buyers to introduce more flexibility, so Energy Aspects is convinced “the market should have plenty of resources to facilitate a destination swap.”
Tariffs hamper 2nd wave of US LNG projects
For now, tariffs are likely to leave demand for US LNG unchanged but these tariffs will make Financial Investment Decisions (FIDs) harder to be forthcoming for the second wave of American liquefaction projects.
“Even the threat of tariffs will likely discourage Chinese buyers from signing up for long-term volumes with US exporters,” analysts warn. With China set to become the unrivalled source of much of the future global demand growth, the threat of tariffs is seen as “a serious headwind for most US LNG projects that have yet to take an FID.”
Kogas tenders for 12 winter cargoes
The lingering trade war between China and the U.S. adds tension to an already stretched market. The prolonged heatwave in Asia is giving several buyers cause for concern about their tank storage levels heading into the winter. Eager to fill up storage, Kogas has just announced a tender for another 12 winter cargoes over October to February 2019.
Kogas’ tender comes partly in response to tax reform proposals that are supportive to natural gas. The government in Seoul is taking steps to increase the tax burden on thermal coal by 28% from April 1, 2019, assuming the bill gets parliamentary approval.
China used to import 1/6 of US LNG output
China’s shift to cleaner-burning fuels in the power sector has increased the country’s gas demand and turned it into one of the world’s largest importer of American shale gas. US LNG exports in 2017 averaged 1.9 billion cubic feet per day, according to EIA data, and of that amount, 15% went to China, making it the third-largest importer of U.S. LNG behind Mexico and South Korea.
Rapid economic growth has propelled up China’s energy hunger and in recent years the Asian power house also emerged as one of the world’s largest importers of U.S crude oil, propane and petrochemicals. In February 2018, China received more American oil than any other destination. Nearly all of these crude oil exports were sent from the U.S. Gulf Coast region.