Qatar Gas and the US/China Trade War
– As the trade war skirmishes between the US and China increase in intensity, China is actively shoring up its defenses.
– Chinese demand for gas is increasing at an accelerating pace and it must ensure supplies continue uninterrupted.
– With the US threatening tariffs on $ 200 Billion of Chinese imports, China is compelled to retaliate accordingly. One such retaliation tool is to impose tariffs on US LNG gas imports into China, which may stunt the anticipated growth of US LNG industry.
– One alternative that China opted for was the signing last week of a 22-year gas purchase agreement with Qatar. It is for 3.4 million tons of LNG gas per year (It is the largest contract that China has ever signed!).
– The US gas operators had been planning dramatic growth in their LNG capacities via the anticipated large volume sales to China as well as expecting large Chinese investments in the planned US LNG infrastructure. This has now evaporated and may negatively impact the economic feasibility of investment in capacity expansion.
– This is a perfect example of having the cash to mitigate problems before they arise (China’s ability to immediately buy alternative sourced gas). Also, it is a perfect example of the advantage of being small, agile and have a short decision-making cycle to benefit from opportunities as soon as they arise (Qatar’s ability to strike an advantageous deal without dramatically upsetting the US).
GENERALLY: Neutral… so far!
NEGATIVE FOR: The USA, as it weakens its planned LNG gas expansion, as well as partially weakens its economic pressure on China.
POSITIVE FOR: China and Qatar. For China, by guaranteeing continued supply of gas as well as countering the US tariffs. For Qatar, by guaranteeing substantial gas sales for a long period (over 20 years), which allows it to embark expanding its gas business and return to the position of the largest LNG exporter.
IMPACT POTENTIAL: Medium
TIME SCOPE: Medium and Long Term