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How will US-China trade war affect gas markets?

Oil&Gas Materials 8 July 2019 15:55 (UTC +04:00)

Baku, Azerbaijan, July 8

By Leman Zeynalova – Trend:

For liquefied natural gas (LNG) exporters of the Gas Exporting Countries Forum (GECF), there is an opportunity to secure new demand in 2019-2020, as China has practically blocked US LNG shipments in its fast-growing market by introducing a 25 percent tariff in September 2018, Alexander Apokin, Energy Economics Analyst at Gas Exporting Countries Forum (GECF) told Trend.

The expert noted that natural gas demand in China is least likely to suffer from the decline in economic activity for two reasons.

“First, the industry in China still relies mainly on coal, with industrial energy demand representing 24.9 percent of gas consumption in 2018. Transport only represents 10.3 percent of gas demand. About 40.2 percent of gas demand is based on power (10.3 percent, mainly peak load) and domestic sectors (27.9 percent), which are less dependent on economic activity and specifically on export trends. Secondly, in the medium-term, the ongoing transition from coal to gas in China is a stronger driver of gas demand trends than economic activity, as it is expected to add up to 35 mtpa (18.2 percent of demand) just following the trends of 2016-2018 in domestic and power sectors,” said Apokin.

The expert went on to add that LNG imports in China grew by 15.75 Mt (40.4 percent) in 2018 to 54.75 Mt, while US exports increased 8.15 Mt (63.2 percent) to 21.05 Mt in the same period.

“However, the US exported just four cargoes to China since the period the tariff was in place (September-May), compared to 35 cargoes a year before, when China became the second-largest market for US LNG. Price was not the only component to this, as Chinese importers reconsidered US supplies even before the 10 percent tariff was introduced. Since February 2018, there were no long-term Sino-US deals, even though Chinese importers signed 7.62 Mt of SPA and HOA (4.5 Mt SPA) for the new deals in 2018-2019 up to date,” Apokin said.

From 2019 to 2020, when the tariffs could be still active, Chinese LNG imports are expected to grow by 25 Mt, or 18.75 percent or the 2018 global imports, the expert believes.

He noted that tariffs would prevent US LNG from taking that niche, despite the rapid buildup of new LNG capacity.

“The increase in other Asia Pacific LNG imports is projected to be much less, at 5 Mt in 2019-2020, as Japan and Korea demand is stagnant, and the new US LNG will compete with new projects from Australia and Russia, in addition to existing players,” said Apokin.

GECF expert believes that in case tariffs stay in place longer, the gap freed up by the US LNG in Chinese market in the medium-term is expected to reach 15 mtpa, though it is expected to be filled mostly with short-term deals pending the result of the trade talks.

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Follow the author on Twitter: @Lyaman_Zeyn

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