China tariffs could mean bleak winter ahead for U.S. LNG

HOUSTON (Bloomberg) -- This winter could be a bleak one for America’s natural gas exporters as the fastest-growing buyer of the fuel threatens to halt purchases amid an escalating trade war.

PetroChina, a unit of the state-owned China National Petroleum Corp., may suspend its buying of U.S. liquefied natural gas cargoes during the colder months, just as new American LNG terminals start up. The move could force gas suppliers like Cheniere Energy Inc. to cut prices as they seek to lure other buyers during the heating season, when demand peaks.

While U.S. LNG companies make the bulk of their money from long-term contracts, Cheniere last winter reaped big earnings from the spot market, which saw Asian prices climb to three-year highs amid booming consumption in China. The world’s second-largest economy is boosting its use of the fuel as it cuts pollution from coal-fired plants.

But with China eyeing a 25% tariff on U.S. LNG, Cheniere and other U.S. LNG traders may have no choice but to sell spot volumes at a discount, Jason Gabelman, vice president at Cowen and Company, said by telephone Monday. Cheniere didn’t immediately respond to a request for comment.

The “U.S. is probably going to have more spot LNG available than it would have had otherwise if it had been selling into the Chinese market,” Gabelman said, expecting that American sourced spot cargoes that would have gone to China would have to be sold into another market.

Other buyers in Asia may look to take advantage of low-cost U.S. gas. Cheniere announced Aug. 10 a binding 25-year contract with Taiwan’s state-owned CPC Corp. beginning in 2021.

“If you’re selling gas in the spot market, you need to find a new place” for cargoes that would have gone to China, said Nikos Tsafos, a senior fellow at the energy and national security program at the Center for Strategic and International Studies in Washington. “And for companies that only have U.S. gas, that’s a bigger headache."