The U.S. oil and gas industry was jarred Monday by President Trump’s escalated trade war with China.
China’s finance ministry, in retaliation to Trump increasing tariffs, announced plans to raise tariffs on a range of U.S. goods, including liquefied natural gas, or LNG. China will hike tariffs on U.S. LNG from 10% to 25% beginning June 1.
“We are deeply troubled by the ratcheting up of China’s tariff and would like to see the two countries reach a resolution quickly, which is in the best interest of all parties,” said Charlie Riedl, the executive director of the Center for Liquefied Natural Gas. “Pricing U.S. LNG out of a key market undermines its competitiveness and its ability to reduce the U.S. trade deficit while providing good jobs at home and growing the economy.”
The hostilities demonstrate the split-screen nature of Trump’s energy and trade policies that often contradict one another.
Riedl was traveling to Hackberry, La., on Monday, where Trump is planning to visit to celebrate U.S. energy exports Tuesday, when he was forced to draft a statement opposing Trump’s trade agenda.
Riedl and other industry officials say Trump’s trade war with China is threatening to block the U.S. from reaching the world’s fastest-growing LNG market and hindering the progress of an emerging industry that is a key plank of the administration’s “energy dominance agenda.”
“The U.S. and China have a natural supply-demand match when it comes to energy, but China’s increase of retaliatory tariffs poses a threat to U.S. investment in LNG by limiting our share in the world’s fastest-growing LNG market,” said Stephen Comstock, the director of the American Petroleum Institute, the largest U.S. oil and gas trade group.
China has represented the best opportunity for the U.S. to flood the world with cheap LNG as the country seeks to wean off its heavy use of coal that harms air quality.
LNG is the chilled, liquid form to which gas must be converted for shipment in giant tanker vessels across the sea.
But only four cargoes of American LNG have been delivered to China from the U.S. since Beijing applied 10% tariffs in September. That compares to 35 cargoes in the prior September through April period, according to the research group Wood Mackenzie.
“The increase from 10% to 25% may reduce flows to China further,” Wood Mackenzie projects.
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The loss of China as a customer comes as the Trump administration is boasting about America’s growing energy export prowess, with the U.S. expected to be a top three global exporter of LNG by 2020.
Federal energy regulators have recently approved new LNG export projects along the Gulf Coast, helping address a shortage of infrastructure that had long been the biggest barrier to increasing sales overseas.
Trump is touring the soon-to-be opened Cameron LNG export terminal in Louisiana on Tuesday, where he plans to give a speech “promoting energy infrastructure and economic growth.”
The Trump administration has also been working to help European allies wean themselves off Russian energy supplies. The EU announced this month that its imports of U.S. liquefied natural gas have climbed 272% since 2016.
But even Trump allies say he is harming his goals with his trade policies.
In addition to the spat with China, Trump’s steel tariffs have increased the cost of building new LNG terminals, just like they have for oil and gas pipelines.
“The president needs to balance the desire to rein in China with his reelect chances and his energy dominance goals,” Dan Eberhart, CEO of the oil services firm Canary and a Trump donor, told the Washington Examiner. “I agree with the president that China is violating trading norms but I also believe they can withstand economic pain a lot more than we can here.”
China has already found replacement sources for LNG, experiencing a 32% growth in LNG imports from September, Wood MacKenzie said.
Chinese buyers have announced long-term contracts for LNG projects in Mozambique and Canada, while Russia will soon begin shipping natural gas through a new pipeline opening later this year.
“These trade negotiations have likely hurt Chinese confidence in working with the U.S. under the Trump administration,” said Jane Nakano, senior fellow in the Energy and National Security Program at the Center for Strategic and International Studies. “China is not turning back from the switch away from coal to gas, and the Chinese will continue to try and diversify its supply.”
