LNG: China’s biggest weapon in the trade war

China’s shift towards more environmentally friendly policies and its goal of doubling natural gas to at least 12 per cent of its energy mix, has made it quickly emerge as a significant player in the market. The potential LNG glut was forecast to persist until 2022, but Beijing single handedly changed the fortunes of producers with a massive increase in imports. China has already surpassed South Korea to become the second biggest importer of natural gas and, according to the IEA, the country is set to become the largest importer next year.

In an attempt to avert a trade war, Beijing proposed to buy nearly $70 billion of American products of which LNG was an important part. The U.S. administration turned down the offer and chose instead to implement the first batch of tariffs, hoping to squeeze more out of China.

After its proposal was denied by Washington, Beijing threatened to include oil in its list of tariffs, which obviously affected prices. However, the fundamentals of the oil market made the Chinese reconsider. China has seen a 200-fold increase in its import from the U.S. in the past two years. Despite the impressive rise, it still accounts for just 3 per cent of China’s total imports.

The effect of tariffs on U.S. LNG could be significant as it would obviously raise the cost of transporting the super-chilled natural gas to Chinese customers. Despite American exporters being the sixth biggest supplier of LNG at the moment, impressive growth and overabundance of natural gas in the U.S. provide it with even more supply for global customers.

Besides the U.S., other major exporters such as Australia and Qatar are looking to expand their production capacity. Woodside Petroleum, Santos, and Oil Search are targeting the final investment decision on three projects worth $35 billion in Australia.

Qatar intends to increase production from 77 million tonnes to 100 million. Russia, on the other hand, is on the brink of completing a multi-billion-dollar pipeline in the northeast with the second string under negotiations in the northwest. All producers are aiming for China and any decision concerning American LNG would strengthen their position.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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