China has stopped importing liquefied natural gas (LNG) from the US for the past 10 weeks, showing that the trade war has spread to the energy sector.
A second LNG ship was diverted to Bangladesh because it did not arrive in China before the country imposed a 15% tariff on imported liquefied natural gas from the US, which took effect on February 10. The tariff was further increased to 49%, making US LNG uncompetitive for importers in China.
During Donald Trump's first term as US President, China froze LNG imports from the world's largest economy for more than a year. However, the impact of the current trade tensions between the two countries could be more serious as it boosts Russia and China's energy ties, according to the Financial Times. At the same time, this also raises doubts about the trillion-dollar expansion plan of LNG export facilities being deployed in the US and Mexico.
Anne-Sophie Corbeau, an expert at the Center on Global Energy Policy at Columbia University, said there would be long-term consequences. "I don't think Chinese LNG importers will sign any new contracts with the US," she said.
Since the Russia-Ukraine tensions erupted, China has imported a relatively low proportion of LNG from the US because Chinese buyers tend to resell the gas to Europe for a profit. Last year, just 6% of China's LNG imports came from the US, down 5% from the peak set in 2021.
However, Chinese companies including PetroChina and Sinopec have signed 13 long-term contracts to buy US LNG, some of which run until 2049, according to Kpler data. Such long-term contracts are essential to kick-start large-scale LNG projects in the US. However, Corbeau said developers have tried to renegotiate terms to include additional costs due to inflation and US tariffs.
Gillian Boccara, an analyst at Kpler, said there was no reason for US-China trade relations to resume in the short term. According to Boccara, China can afford to lose US LNG supplies for quite a while.
Earlier this week, China’s ambassador to Russia also said that the country could increase LNG imports from Russia as a replacement. Russia is currently the third-largest supplier of LNG to China after Australia and Qatar.
With tariffs rising to the level of an embargo, the world will see a restructuring of trade flows, according to expert Richard Bronze at energy consultancy Energy Aspects. The unit predicts a 5–10-million-ton reduction in Asian gas demand, which could also cause prices of this commodity in Europe to fall slightly.