As US and China tit-for-tat tariffs intensify, liquefied natural gas trade continues to be one of the most impacted sectors, following the most dramatic of first quarters.
With China not receiving US cargoes for three months – a statement which would have seemed incredible at the end of 2024 – LNG operators and traders are still trying to adapt in the new world order.
Beijing, which imposed 15% tariffs on US LNG imports in early February, on Friday imposed reciprocal levies on all US goods beginning 10 April, matching US President Donald Trump’s move to put 34% additional tariffs on Chinese goods. The President is now threatening a 50% tariff if China doesn’t withdraw the 34% levy.
Chinese buyers of LNG are re-selling US-sourced cargoes as reciprocal tariffs drive up import costs, and the trend is set to accelerate as new multi-year supply deals kick in this month and domestic demand weakens.
Alongside Asia, Europe is set to be a major beneficiary of the redirected trade flows. In 2024, EU imports of US LNG dropped to 51 billion cubic metres (bcm), from 62 bcm in 2023.
With less US LNG now flowing into China, it opens the door to EU countries signing more contracts. Last year, US LNG exports to the EU were around $13bn, according to the US Census Bureau – that’s around 5.4% of the total US trade deficit with the EU for 2024.
At the same time, the US continues to power ahead with LNG, loosening up permitting and fast-tracking developments.
The country’s Department of Transport Maritime Administration recently issued a licence authorising Delfin LNG to own, construct, operate, and eventually decommission a deepwater port to export LNG from the US, marking the country’s first offshore LNG export project.
But if this planned surge in supply doesn’t head into China, the world’s largest importer, then where does it go?
The other problem for the US, particularly with all its new supply coming up on the horizon, is that European LNG imports are likely to dwindle over time as European gas demand decreases and renewables grow.
But when it comes to trading, the US does have one trump card.
“The beauty of US LNG is its destination flexibility. Offtakers can arbitrage between destinations depending on prices,” the Center on Global Energy Policy notes.
“Aggregators such as Shell and TotalEnergies are beholden to their shareholders, not to ensuring Europe’s security of supply.”
Flexible US LNG will effectively land in EU countries only if EU spot prices are high enough to divert it from Asian markets, according to the Center on Global Energy Policy.
And the tariffs are forcing market changes far beyond the US shores.
Australia-based Woodside Energy Group struck a significant sales and purchase agreement with China Resources Gas International last month, involving 0.6 million tonnes per annum over 15 years, although it won’t start until 2027. That’s a world away in the context of current fast-moving developments.
Nonetheless, just as Europe has adjusted to a ‘Russia-free’ energy era, it shows that China is diversifying its interests, regardless of whether the current stand-off between the superpowers is resolved or becomes permanent. Tellingly, it was the first time the Chinese company agreed to procure LNG over such a timeframe.
Australia, for its part, can see an opportunity in the current impasse to strengthen its hand in the key energy-hungry Asia-Pacific region – but that doesn’t mean the US is out of bounds.
US-based infrastructure investment firm Stonepeak has just bought a 40% interest in Louisiana LNG Infrastructure – which just so happens to be owned by Woodside.
Arabian Gulf states are another important actor, dealing with east and west. QatarEnergy just started supplying China with 3 million tonnes of LNG annually, from January, in collaboration with Shell. But where will it side, should the geopolitical situation worsen?
How the changes impact China’s broader energy strategy, which could be loosely characterised as ‘everything, all at once,’ covering fossil fuels and renewables development, also remains to be seen.
Challenges with LNG supply and demand could force it more into a traditional energy corner. Indeed, rising LNG imports has not slowed the country’s coal consumption according to renewables-leaning think tank the Institute for Energy Economics and Financial Analysis.
“Going forward, cost incentives, energy security concerns and the meteoric rise in renewable deployment will continue to limit the role that LNG can play in displacing coal from China’s power mix, as well as its other large coal-consuming sectors,” it noted recently.
Ukraine-Russia implications
A “stable” Russia-Ukraine peace agreement could lead to years of US LNG under-utilisation and delays on US LNG final investment decisions, according to a new Wood Mackenzie report.
“Energy will be a key part of the negotiation agenda of any peace deal. Removal of US sanctions on its LNG projects will be the very least of Russian demands as it looks to reaffirm its position as a global LNG player,” said Massimo Di-Odoardo, Vice-President of Gas and LNG Research at Wood Mackenzie.
“The EU holds the keys for a potential return of Russian gas to Europe, meaning a comprehensive and mutually acceptable peace agreement is a pre-condition for any meaningful return of Russian pipeline gas.”
It forecasts three scenarios: no quick peace, a forced peace and a stable peace.
Under the first scenario, failure to reach any agreement cannot be ruled out and would result in “stronger for longer” gas prices as even less Russian supply comes to market.
A forced peace, the more likely outcome, would see an easing of sanctions on Russian LNG exports and a rebalanced market, paving the way for lower prices.
In the event of a stable environment, a mutually acceptable peace agreement would open the door to material volumes of Russian gas into Europe – anything up to 50 bcm a year and Russian LNG exports to 12 mtpa.
As a knock on effect, prices based on Henry Hub (the natural gas pipeline and distribution hub, and standard delivery point for natural gas futures contracts traded on the New York Mercantile Exchange) in the US would soften in turn due to lower-than- expected LNG exports, supporting more gas into domestic power generation and helping lower prices for US consumers.
“But with an average of 25 mtpa of capacity at risk of under-utilisation over the next five years, US LNG would be the collateral damage,” it adds.
Di-Odoardo added, “The outcome of ongoing negotiations for a peace agreement between Russia and Ukraine remains highly uncertain. All scenarios are possible, including potential combinations of them. However, recent development suggesting a peace agreement where the US and EU take different approaches to lifting sanctions appears more likely.”
