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As tariff clock ticks, LNG ships race to get from US to China

At least two tankers carrying super-chilled US natural gas are en route to China even as an escalating trade dispute between the two countries threatens to weigh down their cargoes with pricey tariffs.

Both Rioja Knutsen and Gaslog Greece recently left Cheniere Energy Inc’s liquefied natural gas export terminal in Louisiana and have China pegged as their destination, according to vessel-tracking data compiled by Bloomberg. Rioja Knutsen is due in Tianjin on September 1, while Gaslog Greece is expected to reach China on September 19.

Although no date has been set, a 25% tariff on American LNG may be imposed early next month in retaliation for US duties on $200bn of Chinese goods, which could start as soon as September 7.

The tankers’ journeys highlight how presidents Xi Jinping and Donald Trump are willing to suffer domestic pain in order not to back down in the trade fight. Trump risks cutting off the burgeoning US gas export industry from the world’s largest importer of the fuel, while Xi threatens to add higher costs to his drive to clear smog by burning less coal.

The US tariffs could kick in on September 7, after the close of a public comment period, and the Chinese measures would follow. While the US isn’t one of China’s biggest gas suppliers, shipments between the countries peaked over the last winter. That’s the period when China’s consumption tends to be the highest, as home heating in northern cities adds to year-round industrial demand.

Even before the tariffs go into effect, PetroChina Co, a unit of state-owned China National Petroleum Corp, has contemplated halting purchases of US cargoes temporarily and increasing buying from other nations, Bloomberg reported earlier this month. ENN Group, a private gas distributor and burgeoning LNG importer, doesn’t plan to buy any supplies from the US this winter because of the trade tensions, according to two traders familiar with the company’s plans who asked not to be identified. The 25% tariff would make US supplies uneconomical to China, and traders might swap cargoes to get around that by sending American fuel to other buyers such as Japan and South Korea, and redirecting non-US fuel to China, according to Energy Aspects Ltd.

Sydney-based Oil Search Ltd, one of the owners of the Papua New Guinea PNG LNG facility, said it could stand to gain if China were to apply tariffs on US shipments, according to its managing director Peter Botten.

In addition to the two tankers carrying US LNG to China, several others are heading toward Northeast Asia without a final destination flagged. These include Gaslog Hong Kong, Maran Gas Olympias and Maran Gas Sparta.
Source: Bloomberg

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