Consultancy group Wood Mackenzie expects the US-China trade war to have a fairly limited impact on US LNG projects and LNG flows to Asia Pacific.
LNG market fundamentals have softened significantly over recent months and tariffs are unlikely to outweigh this to cause an increase in LNG prices, WoodMac said.
US LNG is already a very marginal supplier to China, with only four US cargoes delivered to China since the tariffs came into effect in September 2018.
Wood Mackenzie said that this is because onstream US producers already have long-term contracts in place with non-Chinese buyers. Moreover, shipping economics currently favor delivery of US LNG into Europe rather than into the Pacific Basin.
Instead, China has seen an uptick in Australian volumes since the start of 2019 – as contracts ramp up and also due in part to supply optimization by portfolio suppliers. The upside for other suppliers with spot volume to sell will, therefore, be modest.
The trade spat, however, could have ramifications on the longer term market, with consequences likely to be felt by new supply developments. For Chinese companies, the current political dynamic creates additional risk and uncertainty around new US LNG projects. As a result, Chinese companies may be hesitant to sign up for new long-term volumes.
And for those US projects still looking for financing, Chinese companies may be reluctant to invest. This will likely encourage Chinese support for other projects outside the US such as Australia, Mozambique, Russia and Papua New Guinea.
Wood Mackenzie noted that some examples of this shift have already been seen in 2019 with CNOOC signing a 13-year offtake agreement from Anadarko’s Mozambique LNG (Area 1), and the entry of CNOOC and CNPC into Russia’s Arctic LNG 2 project.
For US developers, although the risk to Chinese investment and restricted access to Chinese buyers is a blow, it is not fatal. There is still an abundance of interest from established and emerging buyers around the world in new US LNG volumes. In fact, the first wave of US LNG projects actually went ahead with limited contracted offtake from Chinese buyers. And for those projects which are still looking for financing, non-Chinese investment is very much forthcoming, as Aramco’s recent entry to Port Arthur demonstrates.
After talks fell apart in May, discussions on a trade deal between China and the US have been revived in recent days in preparation for the G20 summit in Osaka, Japan. US President Donald Trump and Chinese Premier Xi Jinping will meet at the event later this week. A meeting has now been confirmed by both countries.