China has escalated trade tensions with the U.S. by imposing retaliatory tariffs on American energy imports, marking the latest chapter in a growing trade war between the two largest global economies. On February 10, the Chinese government implemented a 15% tariff on coal and liquefied natural gas (LNG), along with a 10% tariff on crude oil, agricultural machinery, and large-engine cars. The move follows the implementation of a sweeping tariff on Chinese goods by U.S. President Donald Trump, which had just come into effect.
This latest development adds to a history of tariff changes dating back to 2018, when China initially imposed a 10% tariff on U.S. LNG imports. The tariff rate increased to 25% in 2019, and although some imports continued at the lower rate, no LNG shipments entered China under the higher tariff for several months. By February 2020, Beijing temporarily waived tariffs to help de-escalate the trade war, marking the first U.S. LNG shipment to China in nearly a year.
Despite ongoing trade tensions, U.S. and Chinese energy relationships have deepened, with some long-term LNG contracts being signed between the two countries—a notable shift from the absence of such contracts before 2021.
However, the impact of the new tariffs on LNG trade is expected to be limited. The U.S. accounts for less than 6% of China’s LNG imports, and China represents only a small fraction of the U.S. export market. Commodity analysts at Standard Chartered predict that while spot cargoes to China will likely decline sharply, long-term contracts are expected to remain, depending on specific re-export clauses. The primary concern raised by analysts is the economic effect of these tariffs on future long-term contracts, especially considering that some contracts involve at least 15 million tonnes per annum (mtpa) of LNG.
Meanwhile, the U.S. natural gas market has seen a surge in prices, driven by robust LNG demand. U.S. natural gas futures reached $3.7 per MMBtu, the highest level in three weeks. LNG export levels have been rising, with U.S. gas flows to export plants averaging 15.3 billion cubic feet per day (bcfd) in February, up from 14.6 bcfd in January. Despite extreme cold temperatures that have caused a drop in daily gas output, demand remains high, especially for heating purposes. The Energy Information Administration (EIA) reported a significant drawdown of 100 billion cubic feet (bcf) from natural gas storage in the week ending February 7, further straining U.S. supplies.
In Europe, natural gas futures have retreated from a two-year high, falling below €51 per megawatt-hour after hitting €58.04 on February 10. The price decrease is attributed to milder weather forecasts that have eased heating demand. Meanwhile, EU natural gas inventories are significantly lower compared to last year, with storage levels down 21.45 billion cubic meters (bcm) from the previous year. Analysts predict that European inventories could finish the winter season at around 39 bcm, well below last year’s levels but higher than in 2022 following the outbreak of the Ukraine conflict.
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