The Gas Future in East Asia is Getting Interesting

LNG appears in Beijing’s New Tariff List against U.S goods, while Russian gas is gradually opening up the East Asian market, writes Yuki

In the past week, positive and negative news rocked China’s gas market just like an ancient Chinese poem – “The west is veiled in rain, while the east barks in the sun. (My beloved one) is as much detached as in love.”

LNG Goes Full-Frontal in Trade War

Friday Aug.4, Beijing picked a time that Washington D.C is waking up (08:01) to release the four lists of U.S goods that will be imposed with 25%, 20%, 10% and 5% tariffs, as counter measure to the U.S official’s statement a day before threatening to raise the tariff on 200 Billion valued Chinese goods further from 10% to 25%.

Liquified natural gas (LNG) this time appears in China’s 25% tariff list.

This came as a surprise. In the last heated “tariff exchange” between the US and China, Beijing prepared a “second list”—mostly energy products, especially oil-based—as further tariff measure. And LNG was not on that list. Instead, gas-form natural gas was. 

Some market analysts at that point (falsely) believed that, given that China is facing a major challenge to ensure sufficient gas supply, China would not put tariff on LNG bound from the U.S.

The changing position to 25% tariff on LNG speaks for itself of Beijing’s policy priority at the moment.

For China, not importing U.S LNG is not that big of a deal at the moment, which may be another reason for the threat over U.S LNG.

Last year, LNG from Sabine Pass of U.S accounts a merely 4% of China’s total LNG import and 2.2% of China’s total gas import. (According to BP’s recent statistics, China imported 52.6 Bcm LNG last year and 39.4 Bcm pipeline gas).

But for the US, China stood for 15% of LNG export last year. And Chinese market could have played a bigger role to help US future gas export, as EIA’s recent article interestingly pointed out in its title—“China is a key destination for increasing U.S energy export”.

However, overall, LNG export could only play a very tiny role to even out US’ trade deficit with China. It is unlikely the 25% tariff would be a top concern. From now to 2030, China may need to sign 400 million tons new LNG contracts, all together worthy of 13.5 Bn USD equal to 3.6% of the deficit amount.

As I said before, the impact of the trade war on the two’s energy cooperation will be full-blown, as the fight further escalates. This is not only about LNG. Crude and propane could be the next targets.

The Game in East Asian Gas Market

Two weeks ago, Yamal LNG’s first shipment has arrived Jiangsu province of China. The cooperation between China and Russia in Yamal is the first successful step for the two’s cooperation.

The next step and the key milestone between China and Russia’s cooperation would be the start of Power of Siberia, of which 90.5% has been completed, according to Gazprom’s recent statement. 

Gas pipeline Siberia

During the ceremony for Yamal’s first LNG shipment, head of China National Petroleum Corp said, in the future, CNPC and Gazprom’s cooperation will not be limited at China – but maybe toward a third country.

That third country is Korea.

The idea to build a closely-cooperating East Asian gas buyer league is always in the horizon, but so far little has been achieved.

But now the Russia gas export could be a game changer.

There are three proposals discussed for the Koreans to import Russia’s gas via Power of Siberia. Although all options have its pros and cons.

If that day truly comes, the game of East Asian market could be largely reshaped. And right now, Korea is US’s No.1 LNG customer.

Extended Reading

Dr. Paik’s recent paper on Korean energy policy transition

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