China has announced it will put a 25 per cent tariff on U.S. LNG from 1 June 2019, an increase from the 10 per cent level imposed in September.
This is the latest trade war tit for tat between the U.S. and China. Last week the U.S. increased tariffs on imports from China and this is part of China retaliation.
Wood Mackenzie gas research team said in a note: "Our views on the tariff impacts remain largely unchanged from our prior analysis. In August when the tariffs were first announced, we identified that the tariffs would have different impacts on short term and long term trade. We clarified this thinking further when the tariffs were introduced, specifically calling out more limited disruption in the short term. Market activity since these pieces have supported our views."
According to Wood Mackenzie, in the short term the increase from 10 per cent to 25 per cent may reduce flows to China further; however, the absolute value of the tariff is partially offset by falling spot prices in Asia – from over $10/mmbtu when initially introduced to closer to $5.50/mmbtu today.
In the long term, Wood Mackenzie said: "The last long term contract signed by a Chinese offtaker and US seller was in February 2018 – before the Trade War began, when PetroChina signed a 25 year SPA with Cheniere. Since then, Chinese buyers have announced both SPAs and HOAs from the rest of the world, including projects in Mozambique and Canada, and portfolio sellers like Petronas. An ongoing Trade War between the U.S. and China will continue to create hesitancy for Chinese buyers to sign up for new long term volumes."