China had imposed additional tariffs on U.S. goods in retaliation to the U.S. Section 301 tariff measures. It had imposed a 10 percent tariff in September 2018 and increased the tariff to 25 percent from June 1, 2019, effectively halting gas trade between the two countries.
By granting exemptions on some retaliatory tariffs, Beijing strives to comply with commitments in latest Phase-1 trade agreement with Washington. The deal stipulates China will take an additional U.S. energy exports worth some $18.5 billion this year and another $33.9 billion in 2021.
Analysts anticipate this commitment will ultimately help rekindle Chinese demand for U.S. commodities, even though the coronavirus outbreak has seriously affected China’s demand for oil and gas.
China imported 1.53 million tonnes of US LNG in 2017, and 1.64 mt in 2018 but imports plunged in 2019 o just 258,955 tonnes in 2019 because of the trade war, while the Chinese purchased 60 mt from other countries. CNOOC, which has long-term offtake contracts, has been forced to swap U.S. cargoes for non-U.S. cargoes to avoid tariffs of 25 percent, sometimes at high premiums, because of uneconomic US-Asia arbitrage.
Coronavirus curbs China’s gas demand by up to 14 Bcm
China’s coronavirus health crisis has slashed the country’s gas demand by 2 billion cubic metres (Bcm) by the end of the first week in February, mostly due to industry closures and quarantined workers. Anticipating a “limited resumption of economic activity,” Wood Mackenzie says full-year 2020 gas consumption could be between 6 Bcm and 14 Bcm lower.
“LNG will bear the brunt of this reduction in domestic gas demand,” analysts commented, estimating the downside impact to Chinese LNG demand as between 2.6 million tonnes (Mt) ‘best case’ with recovery by April, and 6.3 Mt in a more ‘prolonged case’ with a slower return to normal.
Upstream activities in China stall largely as travel restrictions reduce manpower onsite. Baseload pipeline gas deliveries, however, as less affected as they can be handled in close-off. Hence, Wood Mackenzie estimates China’s domestic gas supply will be lower by between 1.6 Bcm and 2.9 Bcm this year.
Faltering Chinese gas demand could not have come at a worse time for the already oversupplied global LNG market. “Disappointing demand growth in Asia Pacific contributed to the halving of LNG prices through 2019,” research director Robert Sims said, “and with further new volumes emerging from U.S. producers, we were already anticipating lower prices through 2020.