Chinese traders are looking to manage their exposure to US-origin LNG cargoes after Beijing announced 15% retaliatory tariffs effective Feb. 10, traders and market sources said.
The effort is around trying to swap US-origin spot LNG for LNG from other suppliers, and move the US LNG to other destinations so that it doesn't incur the additional tariffs.
Chinese entities that have exposure to spot US LNG are trading houses linked to the top national oil companies, or NOCs, such as PetroChina International, the trading arm of CNPC and Unipec, the trading arm of Sinopec. Other second-tier Chinese importers like ENN, Guangzhou Gas, Zhejiang Energy and Beijing Gas also trade spot LNG but it is unclear how much spot US volumes they have from bilateral deals.
Within the Asia-Pacific, traders said they have been making inquiries to deliver US-origin cargoes into other markets like Japan, South Korea, Taiwan and Southeast Asia, and seek LNG cargoes from Australia, Indonesia, Malaysia, etc. into China, to test price levels.
Chinese importers will purchase cargoes from elsewhere and swap out US LNG, or pay the tariff, depending on how desperate the situation is for them, a trader with a major trading house said.
"Chinese imports of US LNG are likely to decline as a result of the 15% retaliatory tariff," Ross Wyeno, director for LNG analytics at S&P Global Commodity Insights, said Feb. 4. "Although, Chinese imports of US LNG are already down over 50% at the start of 2025 given weak domestic demand and strong European gas prices, which have incentivized the diversion of US LNG trade."
The majority of US LNG cargoes have been flowing to Europe since 2022, which spot prices are still encouraging. But US LNG developers also face the risk of the trade conflict hindering efforts to reach final investment decisions on new liquefaction capacity.
The leading US LNG trade group, the Center for Liquefied Natural Gas, said the retaliatory tariffs by China "directly undermine the Trump administration's efforts to expand American energy exports and strengthen our geopolitical influence."
Asia-Europe arbitrage
In recent weeks, arbitrage economics have been unfavorable for sending US LNG to Asia, with European LNG trading at a steep differential. The spread between JKM and Northwest Europe spot prices on Feb. 4 was minus 10.1 cents/MMBtu, with higher prices in Northwest Europe at $15.201/MMBtu.
Chinese traders have been sending the bulk of their US LNG to Europe anyway, and the current tariff situation further incentivizes pushing US LNG to non-Chinese discharge ports.
"All US and Atlantic cargoes are pointing to Europe. China doesn't urgently require US LNG now as demand remains weak," a trader with a second-tier Chinese gas company said.
However, Chinese importers would have to pay a premium for non-US LNG should new demand emerge and they are forced back to the market, due to unexpected conditions such as the current cold wave sweeping across Japan and South Korea.
This is driving most inquiries for future optimization.
The Platts-assessed East-West arbitrage was effectively shut at minus $1.625/MMBtu on Feb. 3, considering the first-half April JKM/H1 March Northwest Europe price spread against the US Gulf Coast-to-North Asia (via Cape of Good Hope) and Northwest Europe freight route costs.
Originally, US LNG was being sent to Europe due to less demand in China but now it will be due to compulsion, and impact TTF-JKM dynamics, a Singapore-based trader said. "Tariffs will ensure that a lot of US LNG stays in Europe. It will lead to higher JKM, and the opportunity for Qatar to sell more to China," the trader said.
Other Chinese trade sources also said the new tariffs may accelerate efforts to diversify energy imports toward suppliers like Russia and Qatar.
"Chinese LNG demand has declined on a year-over-year basis for the past three months as the market is well supplied with piped gas. The winter also proved to be quite warm, which further depressed demand," said Megan Jenkins, associate director at Commodity Insights.
"From a supply perspective, there isn't an urgent need for these [US] volumes to reach the Chinese market. A 15% tariff on US volumes could give extra incentive to swap or resell to premium markets like Europe," she said.
"If the situation is not resolved by summertime when we expect Chinese demand to pick up, Chinese buyers would be in a more difficult position compared with now. Especially if the weather is hot," Jenkins added.
US LNG reaction
The retaliatory tariff carried echoes of a trade conflict with China during Trump's first term, which resulted in 13 months of restrained flows of US LNG to the massive Chinese end-user market and slowed commercial talks supporting US LNG export projects. Deliveries resumed in April 2020 after exemptions China granted some of its importers as part of a larger US-China trade deal.
"At a time when US LNG is providing unparalleled economic and strategic advantages, policies that restrict market access only weaken America's competitive position in global energy markets," Charlie Riedl, executive director of the Washington-based US LNG trade group, said Feb. 4. "We urge the administration to ensure that US LNG remains a priority in trade negotiations and that barriers to our energy leadership are swiftly removed."
Riedl added that the trade group hoped to work with the administration hoped to work with Trump and other policymakers to come to an agreement on China like the president did with Canada and Mexico.
During the US-China trade conflict in Trump's first term, only one US LNG exporter held a long-term supply deal with a Chinese counterparty -- Cheniere Energy. The agreement was for a combined 1.2 million mt/year under two contracts signed in 2018, and only a small portion was in effect before 2023.
US developers' exposure to China has grown significantly in the years since the last trade dispute. US-China LNG contracts now exceed 23 million mt/year, representing around 19% of China's total LNG term contracts signed, with most of the contracts estimated to begin delivery during the 2025-2028 period, according to Commodity Insights data.
"Importantly, the 15% retaliatory tariff is likely to impact Chinese contracting on pre-FID export projects and could weigh into decisions to re-sign on contracts that may be facing nearby expiry dates," Wyeno said.
Long-term impact
With a 15% tariff, spot LNG costs around $17.5/MMBtu, which is relatively expensive, but US term LNG is around $10/MMBtu, leaving term volumes less impacted. But once spot LNG prices drop to single digits, the situation could change quickly.
The trader with the second-tier Chinese gas company said that marketing long-term US LNG to Chinese buyers is likely to be impacted by the 15% counter tariff due to elevated sovereign risk.
While China has already bought long-term US LNG, with many contracts starting before 2030, importers will try to reduce future exposure, a Japanese trading house said.
Overall, US tariffs and falling exports could also impact the overall Chinese economy as 30%-40% of gas demand comes from industrial consumers, which is already under pressure from a slowing economy.
In 2024, China imported $163 billion worth of US goods, including $3.25 billion in crude oil, $651.65 million in LNG, and $520.99 million in coal, according to customs data.
