Energy traders were on alert when Reuters reported last week that Chinese energy giant, PetroChina – the world’s first company to hit (and lose) a $1 trillion market cap long before Apple – was in advanced discussions with Qatar to purchase liquefied natural gas (LNG) under short- and long-term agreements. The superficial explanation was that China needed to secure generous amount of LNG to supply its push to replace coal with cleaner burning natural gas to reduce air pollution. And sure enough, after Beijing started the program last year, China had overtaken South Korea as the world’s second-biggest buyer of LNG.
The deal also made sense from the perspective of the “blockaded” Qatar, the world’s biggest LNG producer, as the isolated Middle Eastern country sought buyers for a planned output expansion.
As it turns out there was another reason for the PetroChina supply diversification: PetroChina may temporarily halt purchases of spot U.S. liquefied natural gas spot cargoes through the winter to avoid potential tariffs as a result of the trade war between the U.S. and China, Bloomberg reported on Sunday according to sources with knowledge of the strategy.
Under the plan, PetroChina would boost buying of spot cargoes from other countries or swap U.S. shipments with other nations in East Asia to avoid paying additional tariffs, said the people, who asked not to be identified because the information isn’t public. PetroChina, a unit of the state-owned China National Petroleum Corp., couldn’t immediately comment when contacted by Bloomberg.
In retaliation to the latest round of tariffs imposed on China by the US, Beijing responded that it was considering a 25% tariff on U.S. LNG, which had been missing from previously targeted goods, direct hitting American gas exporters.
The move comes ahead of the winter heating season when demand and prices typically peak and shows two things: i) that Xi Jinping may be willing to suffer some pain to avoid backing down from U.S. President Donald Trump’s trade dispute, and ii) China is planning on lasting out the trade war for the long haul, suggesting that a near-term solution looks unlikely.
“If the tariff is implemented before winter, it would potentially increase the competition for non U.S. supply to the Asian market and hence drive up spot prices in Asia this winter,” Maggie Kuang, an analyst with Bloomberg NEF in Singapore said in an email. “Australia, Qatar, and Southeast Asia will most likely benefit.”
Meanwhile, US LNG …read more