Australia's booming LNG sector is set to benefit from the increasing trade tensions between the United States and China, with potential delays to US projects forcing Beijing to look at Australia to fill the gaps in its rising gas demand.
Tensions between the two countries deepened this week after US President Donald Trump threatened to slap China with an additional $US300 billion ($435 billion) in tariffs. China retaliated by raising its own import tariffs, including lifting imposts on US LNG from 10 per cent to 25 per cent, starting on June 1.
US President Donald Trump’s increasing tariffs on Chinese goods have seen the Chinese retaliate by slapping higher tariffs on US LNG.Credit:UPI
US LNG exports to China have already fallen 80 per cent, down to just four cargoes, this financial year compared with this time last year. China has no tariffs on US oil.
In 2018, China imported 23 million tonnes of LNG from Australia, about 42 per cent of the country’s total LNG exports. China was expected to import about 3 million tonnes of LNG from the US this year, before the tariffs.
Global research house Rystad Energy said the increasing vitriol in the trade war could delay approvals for new US LNG projects waiting on final investment decision and contracts with Chinese buyers.
“Most of these US projects need to secure long-term contracts in order to get financing for their development,” Rystad Energy gas analyst Sindre Knuttson said.
“[We] expect China to be one of the biggest contributors in sponsoring new LNG projects over the coming years, and there will be a reluctance to signing new deals with US projects as long as this trade war persists.”
This is a positive for Australian LNG.
Mr Knuttson said late last year US-based gas group Cheniere Energy agreed to a 20-year deal to annually supply 2 million of LNG to Chinese state-owned company Sinopec starting in 2023 but this has been delayed.
“This deal could have been signed once the trade tensions were resolved, but due to the heightened tensions this has not happened,” he said.
“This means that non-US projects are more competitive in terms of break-even price and that China, therefore, could have greater bargaining power when negotiating new contracts.”
This may impact the forecast $US200 million global construction surge, with about 90 million tonnes worth of new LNG developments projects expected to reach a final investment decision and begin construction over the next two years.
Much of this new development was slated for the US, which is experiencing a shale gas boom.
Chinese LNG demand is forecast to soak up much of the increase, as it leaps from 53 million tonnes in 2018 up to about 93 million tonnes in 2025, making it the world’s largest gas importer
Credit Suisse energy analyst Saul Kavonic said the boon would benefit Australia as China looks for new, more stable sources of LNG.
"Overall, this is a positive for the marketing of Australian LNG," Mr Kavonic said.
"US LNG is a competitor to Australia, so the tariffs work to take Australia's main competitor out of the market.
"If you're a Chinese buyer looking to sign a 20-year deal then you're going to be wary of these [political] risks."
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