Learn more about Hart Energy Conferences
Get our latest conference schedules, updates and insights straight to your inbox.
China’s threat to impose tariffs on U.S. propane and polyethylene is unlikely to have a significant near-term impact on exports, an analyst said.
But the U.S. could be hurt if China decided to place tariffs on LNG to retaliate for U.S.-imposed tariffs on steel, Uday Turaga, founder and CEO of ADI Analytics LLC, told Hart Energy.
“If China would have put a tariff on LNG I think that would have had some impact because LNG markets are oversupplied right now,” Turaga said. “China buys a lot of LNG so it could have hurt them a lot more which is why they probably didn’t look at LNG.”
Many experts, including Turaga, question the wisdom of trade wars in general. On April 16, top diplomats of China and Japan issued a statement that a trade war could have serious consequences for the world economy. A piece by Philippe Legrain in Foreign Policy opined that the U.S. had much more to lose than China if one erupted.
While ample supplies are available, especially from Australia and Qatar, U.S. LNG is proving to be more competitive on the global market than other suppliers, Turaga said. China has also made it clear that it doesn’t want to be locked into one supplier.
“They try to go after a wider range of sources,” he said.
Turaga said he believes that the threat against propane and polyethylene, two of 106 items that could be subject to Chinese tariffs, are mostly symbolic.
“It seems that China went after commodities that they can buy easily [elsewhere],” he said. “The U.S. can find other buyers for [these commodities] so the impact of this is small.”
What a trade war could do is slow the ramp-up of U.S. propane exports to China and encourage the Chinese to buy from other exporters such as Saudi Arabia, Qatar, Algeria, Norway, Kuwait and Iran.
“Exporters in the Middle East and elsewhere would benefit by carving out more market share in China, while U.S. exporters would compensate by pricing propane more competitively to expand market share in markets like Asia, Europe and Africa,” wrote ESAI Energy LLC analysts in a recent report.
Losing a foothold in China would turn the U.S. into more of a swing supplier, ESAI said. That would cut into U.S. exports during summer months when demand is typically weakest. The analysts project that seasonal prices at Mont Belvieu, Texas, would weaken even more.
Tariffs on polyethylene could push Chinese buyers to look to north Asian and Middle East naphtha suppliers, a blow to the new and existing ethane crackers on the U.S. Gulf Coast, ESAI said. That development could hammer ethane demand and prices in North America.
Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.
Recommended Reading
E&P Highlights: Jan. 12, 2024
2024-01-15 - Here’s a roundup of the latest E&P headlines, including an SLB-Nabors collaboration and new contract awards.
Sinopec Brings West Sichuan Gas Field Onstream
2024-03-14 - The 100 Bcm sour gas onshore field, West Sichuan Gas Field, is expected to produce 2 Bcm per year.
CNOOC Finds Light Crude at Kaiping South Field
2024-03-07 - The deepwater Kaiping South Field in the South China Sea holds at least 100 MMtons of oil equivalent.
CNOOC Makes 100 MMton Oilfield Discovery in Bohai Sea
2024-03-18 - CNOOC said the Qinhuangdao 27-3 oilfield has been tested to produce approximately 742 bbl/d of oil from a single well.
Orange Basin Serves Up More Light Oil
2024-03-15 - Galp’s Mopane-2X exploration well offshore Namibia found a significant column of hydrocarbons, and the operator is assessing commerciality of the discovery.