China's threats of new tariffs on $60 billion worth of U.S. imports will create shifts in the energy market, as American liquefied natural gas makes the list of goods Beijing will target, analysts said.
The move to include LNG raised eyebrows as China had previously held back at including the fuel on the list of products subject to tariffs. That is as the country looks to natural gas as part of its efforts to clean up politically sensitive air pollution.
But things have changed since trade tensions with the U.S. escalated dramatically in recent weeks and some have questioned if Beijing's move will hit American gas exports. The U.S. is the world's top producer of natural gas and is a growing major exporter of LNG.
If implemented, a tariff on LNG "would deal a serious blow to the U.S. gas industry and President (Donald) Trump's 'energy dominance' agenda," said Hugo Brennan, senior Asia analyst at consultancy Verisk Maplecroft.
"Chinese gas demand forecasts are underpinning a raft of proposed LNG export terminals along America's East Coast, which align with the Trump administration's bid to turn the U.S. into an energy superpower. But some of these projects will struggle to attract financing if (China) goes ahead and raises tariff barriers on U.S. LNG," Brennan wrote in a Tuesday note.
China was the world's second-largest importer of LNG last year. The country is expected to become the world's top importer of the super-chilled fuel next year, the International Energy Agency said in June. Last year, about 15 percent of U.S. LNG exports went to China.
The current standoff is a sharp shift from the situation earlier this year when Beijing offered to buy more U.S. energy exports to reduce the massive bilateral trade deficit.
Now, that "looks like a distant prospect, given that high-level talks have broken down against a backdrop of threats and counter-threat," said Brennan.
Still, there are analysts who counter that the U.S. gas export boom is something that cannot be stopped — with or without China.
Currently, most U.S. LNG exports are secured on long-term contacts, so the impact will be fairly limited until the deals expire. However, the spot LNG market — which has been growing steadily — will be hit. Longer term contract negotiations could also be affected.
"A 25 percent import tariff, amid a backdrop of strong government rhetoric against U.S. energy imports, is likely to see U.S. LNG priced out of the lucrative Chinese gas market," said analysts at Fitch Solutions Macro Research.
Brennan echoed that sentiment, writing in his note that "geopolitical dynamics will undermine American exporters' bid to become major gas suppliers to China."
Indeed, U.S. LNG customers from China have told energy information firm Platts that companies will be deterred from ordering American supplies in the near-term as the tariffs will push prices above what they can afford. Platts cited unnamed sources at state-owned and privately-held Chinese companies.
Fitch Solutions said it expected major LNG players such as Shell, Total and Trafigura to be the most affected as they acquire cargoes from U.S.-based projects before selling them onto markets where demand and prices are the strongest.
On Wednesday, official data from China showed U.S. imports of LNG fell to their lowest level in a year for the month of July, Reuters records showed. That softening came amid the backdrop of strong 2018 gains: China imported about 17 percent more U.S. LNG from January to July this year than it did in all of 2017, S&P Global Platts Analytics data showed.
Still, Giles Farrer, research director for global gas and LNG supply at Wood Mackenzie, said in a note last week that the U.S.-China spat was "unlikely to be terminal" for American suppliers because "plenty of appetite exists from other buyers in Asia and Europe."
"The boost to Australia could be bigger over the next five to ten years as the opportunity of grabbing a larger share of China's growing LNG market may prompt Australian producers to expand capacity and output. That could help mitigate the long-term hit to Australia from a rise in global trade barriers," research consultancy Capital Economics said in a recent note.
Demand for piped gas from suppliers like Central Asia and Russia may also get a lift, experts said.
China, meanwhile, could find itself more vulnerable to energy price spikes if its potential pool of LNG suppliers is reduced.
Although U.S. LNG makes up a relatively small component of China's overall gas mix, seasonal spikes in household and industrial demand can drive up the need for short-term cargo purchases — such as those from the U.S. — to supplement long-planned volumes, said Fitch Solutions.
The need for flexible cargo demand in the winter is evidenced by China importing more U.S. LNG from November 2017 to January 2018 than it did during the first 10 months of 2017, Fitch Solutions added.