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The US’s largest exporter of liquefied natural gas has said that deals for the supercooled fuel with China are on hold until both countries resolve a trade spat that has disrupted the shipping of goods from soyabeans to medical equipment.
Eric Bensaude, a top executive at Houston-based Cheniere Energy, said negotiations with Chinese importers, among the most important buyers in the LNG market, are on ice since political relations have worsened.
US president Donald Trump’s top economic adviser has said that talks to end a tariff war between the world’s two most powerful economies could carry on for “months”, in the latest sign of a lack of traction in negotiations.
Mr Bensaude told the Financial Times this week that Mr Trump “is definitely making some headwinds for us to sell long-term contracts to China.”
Cheniere has been caught up in the spat as China added a 10 per cent tariff on US LNG imports as part of the tit-for-tat war. Instead, China has bought more LNG from rival producers such as Qatar and Australia.
“[The buyers] have received instructions not to enter into more transactions,” said Mr Bensaude.
Mr Bensaude said he was optimistic that the stand-off would be resolved, and that Cheniere and its Chinese buyers — such as big utility companies — were ready to sign new deals when an agreement was reached.
“It’s down to two men,” he said of the heads of both countries.
Mr Bensaude said that LNG would likely form part of any deal to improve bilateral relations and help “reducing the trade imbalance between the two countries”.
China, the world’s second-largest LNG buyer after Japan, imported 54m tonnes in 2018, up nearly 40 per cent from the prior year.
Cheniere signed the first long-term supply deal, a 25-year contract, with China last year, for 1.2m tonnes of LNG annually to state-owned China National Petroleum Corporation.
Geopolitics is increasingly having an impact on the global LNG industry as the number of buyers and sellers proliferates and the market becomes deeper and more actively traded.
The US-China trade war comes as prices for the fuel in Asia have fallen to multiyear lows, raising questions about the appetite for new project launches.
US LNG producers such as Cheniere need long-term purchasing agreements with Chinese importers so that lenders can feel comfortable backing new developments.
“The trade war makes things more complicated [for US LNG companies],” said Trevor Sikorski, natural gas and carbon analyst at Energy Aspects, a consultancy.
Prices have been dragged down by a mild winter in Asia and Europe, a reduction in buying on the spot market by China, and the restarting of nuclear power plants in Japan, which were shut down following the 2011 disaster. Meanwhile, an increase in supply caused by new projects coming online has also weighed on prices.
Last week the Platts’ JKM index, which tracks prices for Japan and Korea, slipped below the European gas benchmark for the first time since 2016. That was when the US started exporting LNG, increasing liquidity in the market.
The JKM index was trading at 4.371 per million British thermal units, the lowest since April 2016, compared with TTF’s 4.91 per MMBTU.
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