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More US LNG shipments reaching China as other cargoes cancelled
The number of cancelled US LNG cargoes is reported to be on the up, but this comes as more LNG from the US is reaching China after shipments between the two recently resumed
COMMENTARY
WHAT:
A growing number of US LNG cargoes are being cancelled, but at the same time, more shipments are reaching China.
WHY:
China has recently started granting tariff waivers to some LNG importers, allowing trade with the US to resume.
WHAT NEXT:
There are concerns over renewed trade tensions as a result of China being unable to meet its trade commitments to the US, including for energy.
REPORTS of US LNG cargo cancellations are on the rise, but in more positive news for the country’s exporters, more shipments of the fuel are reaching China. Indeed, China’s economy is gradually reopening after it was the first to go into lockdown in an effort to contain the coro- navirus (COVID-19) outbreak. And shipments of LNG to China, which have only resumed recently after stalling last year, are steadily rising for now, providing a new outlet as sellers look for buyers in an oversupplied market.
At the same time, though, there are worries that trade relations between the US and China could worsen once again if the latter does not meet its com- mitments to purchase more US energy, including LNG. US President Donald Trump recently threat- ened to pull out of the Phase 1 deal if China does not meet its commitment under this agreement to buy an additional $52.4bn worth of energy products from the US over 2020-21. Given that this target appeared highly unlikely to be met even before COVID-19 caused China’s energy demand to fall, it certainly seems out of reach now. And for LNG producers urgently seeking a home for their output, some LNG exports to China would be better than none.
Trade reopens
Seven vessels delivered US LNG cargoes to China between April 20 and May 14, accord- ing to information from ClipperData. This
marks the first time in over a year that China has imported US LNG after it raised tariffs on cargoes of the fuel from 10% to 25% in the mid- dle of 2019. Some LNG trade had still continued between the two countries when the tariff was 10%, though it had fallen sharply compared to the previous months.
The fact that the tariffs were not lifted alto- gether when the Phase 1 deal was announced was immediately highlighted as a deterrent to ramping up LNG trade. However, Beijing sub- sequently started accepting applications from LNG buyers in March to waive tariffs as the country was re-emerging from lockdown and seeking to step up purchases of US energy.
While the move to offer waivers has been welcomed, and is already seen to be helping the LNG trade between the two countries, it is still not entirely straightforward for Chinese buy- ers wishing to take US cargoes and will put the brakes on efforts to ramp up shipments signifi- cantly. In addition, a number of US LNG devel- opers were counting on Chinese buyers to sign long-term offtake contracts, allowing construc- tion of new liquefaction capacity to go ahead. If all that is being offered is waivers, potentially only covering the two-year period outlined in the Phase 1 deal, this will likely not be enough for Chinese buyers to be willing to commit to US LNG in the longer run.
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w w w . N E W S B A S E . c o m Week 21 28•May•2020