SINGAPORE (Reuters) – Shipments of liquefied natural gas (LNG) from the United States to China remain cheaper than other sources despite a 10 percent tariff that was imposed on the cargoes this week in the trade war between the two nations, industry sources said on Wednesday.
But political risks may still deter Chinese buyers from U.S. cargoes even if they are a lower price, they said.
“For a Chinese buyer, the overall risk profile for procuring U.S. LNG remains heightened, so we would expect Chinese buyers to pivot the emphasis in their longer term LNG procurement strategies away from U.S. supply, to places such as Qatar and Australia,” said Saul Kavonic, director for Asia Pacific markets and head of energy research at Credit Suisse in Australia.
China said on Tuesday it would tax U.S. products worth $60 billion effective Sept. 24 in retaliation for tariffs imposed by U.S. President Donald Trump. This includes a 10 percent tariff on LNG shipments from the United States, although this was less than the 25 percent it had threatened to impose.
China’s decision not to impose a higher tariff on LNG could have been due to an anticipated pick up in demand during winter, Kavonic said.
“The smaller tariff may allow for some more U.S. cargoes to compete for Chinese demand as we approach winter, and provide Chinese buyers with more leverage to procure non-U.S. cargoes if the market becomes very tight,” he added.
Shipments of LNG from the United States to China work out at least 9 percent cheaper than the delivered price into China compared with those loading from other key suppliers, according to calculations by Reuters and industry sources.
The calculations are based on long-term prices committed for U.S. cargoes, shipping costs and loading-capacity fees.
GRAPHIC: China LNG import prices from main suppliers – tmsnrt.rs/2pkTt6h
Despite the cheaper cost, the trade war between the world’s biggest economies has caused Chinese state-owned oil majors such as CNOOC and Sinopec to shy away from U.S. cargoes in the spot market recently, two sources familiar with the matter said.
“We have told sellers not to supply us with U.S. LNG now … and will continue to avoid until the (tension eases),” one of the sources said, citing political reasons.
This shift is already showing in the trade volumes.
Only one tanker carrying LNG loaded from the United States was bound for China in August, compared with three in July, while nothing has loaded in September so far, Thomson Reuters Eikon shiptracking data showed.
At least one Chinese buyer tried to work around the anticipated tariff by asking sellers to absorb the tariff cost in new contracts they were signing, but it was not immediately clear if any sellers agreed, a Singapore-based LNG trader said.
“I don’t think the U.S. sellers will be too worried about selling their spot cargoes to the Chinese as they know their price is still competitive,” another Singapore based industry source said.
GRAPHIC: U.S. LNG shipments to China fall during trade war – reut.rs/2MILglC
Still, damage has been done, said Kavonic.
“Even with a smaller tariff, there has likely been some longstanding damage done to the perception of reliability of U.S. LNG supply in the eyes of Chinese buyers who will shape the next wave of global LNG projects, benefiting marketing of new supply projects and contract rollovers at Australian projects,” he said.
GRAPHIC: Major LNG suppliers to China – reut.rs/2Mt6hBx
Reporting by Jessica Jaganathan; Editing by Edmund Blair