NEWSOct 26, 2018

Losing the Chinese Market, U.S. Natural Gas Exports are Hit Hard

In September, in response to the US levying a 25% tariff on more than 300 Chinese goods, China also imposed a 10% import tax on US LNG. Since then, China has completely stopped purchasing US natural gas.

China, the third largest importer of natural gas in the United States, purchased 3.6 million tons of liquefied natural gas (LNG) from the United States last year. However, due to US’s own reason, China has restricted imports of US natural gas this year, and the imports from January to August were no more than 1 million tons.

According to data from China Customs, due to China's large-scale promotion of coal-to-gas conversion plan, China's LNG imports in 2017 jumped 46% from 2016 to reach a record size of 38.13 million tons, surpassing South Korea to become the world's second largest LNG importer, second only to Japan. According to the prediction of the International Energy Agency in June, China will surpass Japan in 2019 to become the world's largest natural gas importer; by 2023, China's natural gas imports will nearly triple, reaching 171 billion cubic meter. Losing the world's largest natural gas importing country and the huge business opportunities it contains is undoubtedly a serious loss for the United States. Whereas for China, in 2017 US natural gas exports to China accounted for only 2% of China's total natural gas imports. In addition, China has other options such as Australia, Malaysia, and Russia, and in the next three years, the global natural gas supply will remain in a relatively loose state, so even if the natural gas import from the United States is completely stopped, it will have little impact on China's overall natural gas supply and demand pattern.

Since natural gas production exceeded Russia in 2009, the United States has become the world's largest natural gas producer. At present, the US natural gas production is expected to exceed 687 billion cubic meters per year, accounting for 20.4% of the world's total natural gas production. US exporters' average monthly revenue from supplying LNG to China last year was about $1 billion. China’s complete suspension of US natural gas has caused US exporters to lose large sums of money, and also hit the strategic plan for US LNG production.

Not only lost the huge consumer market of China, the European market is also difficult to occupy for the United States. European countries are highly dependent on Russian gas. Lithuania once had a 100% dependence on Russian gas; 85% of Hungary's natural gas comes from Russia; More than 90% of the natural gas consumed by the Czech Republic and Slovakia comes from Russia. Moreover, more than 40% of natural gas consumption in Europe currently comes from Russia. In addition, Russian natural gas has a unique price advantage, but the cost of transporting LNG from US to Europe is high, resulting in a correspondingly high price. As a result, the United States had to sell LNG at a low price. The United States recently signed a 20-year LNG subscription agreement with Poland, but the price is only 30% of Russia. In addition, related matters such as trading on FOB prices and setting up trading ports are also decided by the buyer Poland.

Nowadays, the energy market is dominated by the demanding country instead of the supplying country. Whoever has a large demand has the right to speak. Due to strong demand for LNG in China, countries such as Qatar, Nigeria, and Russia have seized business opportunities and have increased their exports of natural gas to China. If the United States still does not realize the role of the energy market, it will have to give up its market share in China.
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