Summary
In response to the ongoing trade battle with the U.S., China has levied tariffs on $60 billion of U.S. goods as a measure of retaliation. Although energy was also influenced by and a 10% tariff was imposed on liquefied natural gas (LNG) imported from the U.S., this new tariff is relatively slight compared to the 25% tariff proposed previously, which relieves the concerns of the market.
As the U.S.-China trade battle continuing, China has reduced the energy import from the U.S., oil and LNG included. China’s oil imports from the U.S. have declined recently, so did the import of LNG. According to data from Barclays, China’s LNG imports from the U.S. have fallen 60% since December 2017. However, the market holds a relaxed attitude towards both this trend and the new tariff, considering its immediate impact on price and import to be minimum and focusing more on geopolitical factors.
Energy Gets a Reprieve in China’s Latest Tariffs
In the U.S.-China trade battle that’s targeted everything from soybeans to SUVs, energy has gotten off somewhat easy.
In its latest retaliatory measure on Tuesday, China levied tariffs on $60 billion of U.S. goods, including a 10% tariff on liquefied natural gas, or LNG.
However, the move fell short of previous proposals for a 25% tariff, alleviating some of the worries over the impact to U.S. natural gas exports. Shares of LNG exporters Cheniere Energy Inc. and Tellurian Inc. TELL -2.74% both closed up 3% on Tuesday. Since then, Cheniere’s stock has risen another 2% while Tellurian shares have given back gains.
“The lower 10% figure was seen with relief by the market,” Samuel Phillips from Barclays wrote on Wednesday.
Under the looming threat of tariffs, China has cut back on energy purchases from the U.S. in recent months. According to S&P Global Platts, China’s U.S. oil imports have declined from a record high reached in June. Barclays data shows China’s imports of U.S. LNG have fallen 60% from their peak in December 2017 through July.
But while U.S. LNG is poised to become more expensive for Chinese buyers, the immediate effects on the market should be minimal, with U.S. prices still relatively competitive, analysts said. Crude oil, which appeared on a list of products that could be subject to tariffs earlier this year, has also been left out of the trade war thus far.
So far, oil and natural gas markets have taken the tariffs in stride. Though some analysts speculate that a prolonged trade dispute could hurt demand for oil, traders have been more focused on geopolitical factors, such as sanctions against Iran.
China could still increase tariffs on LNG or add crude oil to the list. But Giles Farrer, research director at consultancy Wood Mackenzie, said China may already be done buying LNG for the winter, which could mitigate some of the impact on prices and imports.
“With all of those considerations, we don’t think the impact is going to be as strong,” Mr. Farrer said.
Source: The Wall Street Journal, Stephanie Yang, Sep. 21, 2018. Photo credit to Agence France-Presse/Getty Images.