China Proposes Steep Tariffs on U.S. LNG

China’s government has proposed to levy tariffs of 25 percent on American LNG exports, threatening the burgeoning trade in natural gas between the U.S. Gulf Coast and East Asia.

Multiple American energy companies are investing in capital-intensive liquefaction capacity to satisfy growing Chinese demand. China has limited domestic supplies, and as its consumption grows, it has quickly surpassed Japan to become the world’s largest natural gas importer.

China gets just over half of its import volume from LNG shipments, and it imported about 38 mtpa last year, up from about 10 mtpa in 2010.

Half of that increase came in the last two years alone, driven by a government policy favouring gas over coal.

The U.S. supplied four percent of China’s LNG demand last year, making it the nation’s fifth-largest supplier.

The threat of steep tariffs on U.S. LNG, even if never fully implemented, could have a chilling effect on American investment decisions and the signing of new purchase agreements.

Given the commodity’s importance, many analysts had predicted that Beijing would leave LNG out of the trade restrictions it is imposing on U.S. exports in retaliation for the Trump administration’s escalating rounds of tariffs.

“LNG is clearly seen as an essential good by the Chinese government. Given this, in the event of an escalation, LNG is likely to remain outside the bounds of any additional tariffs,” predicted analyst Nicholas Browne of Wood Mac in a research note in June.

That calculus may change next year when Gazprom’s massive “Power of Siberia” pipeline is complete. Once operational, it will deliver up to 60 billion cubic meters per year from Russian gas fields – more than the total amount of LNG that China imported in 2017.

China and Russia are already in negotiations over a second, parallel pipeline with equivalent capacity.