Higher Chinese tariffs on US gas could buoy local LNG producers
Local LNG producers could win from higher Chinese tariffs on US gas exports, say analysts.
Australian LNG producers may win higher long-term contract prices with China following Beijing’s retaliatory move to raise tariffs on gas imports from the US, consultancy Wood Mackenzie says.
Woodside Petroleum could strike a more lucrative deal for its planned expansion of the Pluto 2 LNG project in Western Australia while Papua New Guinea focused supplier Oil Search could also benefit as it works to double LNG output from the Pacific Nation.
China’s move “should support development of other projects outside of the US targeting the Chinese market, such as Pluto Train 2, potentially allowing Woodside to push for higher long-term contract prices,” Wood Mackenzie research director Nicholas Browne says.
China, the world’s fastest growing importer of the fuel, hiked the tariff on US LNG to 25 per cent from June 1 compared with the current rate of 10 per cent. That followed President Donald Trump’s decision last week to hike US tariffs on an $US200bn of goods.
“For the long-term LNG market, the consequences are likely to be felt on new supply developments,” Mr Browne says. “It restricts the target market for developers of new US LNG projects trying to sign new long-term contracts. Several of these projects would also welcome Chinese investment which now is looking more and more remote.”
China will likely avoid signing long-term deals with US LNG producers given the heightened tensions, Credit Suisse says.
The move “portends a benefit to marketing of Australia’s pre-final investment decision LNG projects into China, where US LNG presents the greatest potential competition to Australian volumes for market share,” Credit Suisse analyst Saul Kavonic says. “Chinese buyers will likely remain hesitant to sign long term contracts for US LNG while the trade dispute continues, to the benefit of LNG project marketing from competing jurisdictions like Australia, PNG and Qatar.”
With access to cheap shale gas, the US could vie with Australia and Qatar as the world’s top LNG exporter within five years if it hits ambitious export targets.