Trade war with China could provoke US to take drastic measures to protect its economic interests
China has completely stopped exporting liquefied natural gas (LNG) from the United States since February 2019. About this writes the publication Bloomberg, which analyzed the movement routes of gas tankers. Such a development of events can hardly be called unexpected in the light of the unfolding trade war between Beijing and Washington. Moreover, China has already introduced at first 10%, and then 25% duty on US LNG.
Bank of America Merrill Lynch (BofA) in a recent analytical review has already written that the planned LNG projects are postponed until at least next year. The fact is that multibillion loans are needed for their implementation, and banks refuse to provide them without guarantees of sales of products. Previously, such a guarantee was the booming Chinese market, but now American LNG may remain unclaimed.
$ 28 billion worth of Driftwood terminal in Louisiana, which Tellurian was planning to start this year, as well as Magnolia terminal of Liquefied Natural Gas Ltd (LNG Ltd) and NextDecade Corp.’s Rio Grange, are under threat of freezing. After the publication of the BofA report, Tellurian shares fell 19% in one day, NextDecade – 13%, LNG Ltd. – by 2.6%.
And this is not the only problem. American analysts are not sure that even if relations with China normalize, the United States will be able to return to this market – the competition is too great. Already this year, the Power of Siberia gas pipeline should be launched from Russia to China, through which in the future 38 billion cubic meters of gas will be pumped annually.
Washington no longer knows how to stop the powerful development of the Middle Kingdom.
Russia is also entering the LNG market with projects such as Yamal-LNG and, in the future, Arctic LNG. Other players appear, both large ones, such as Australia, and smaller ones, for example, Papua New Guinea.
All this, some analysts believe, jeopardizes the entire development of this industry in the United States, and then Washington’s plans to become a leading gas exporter by 2024 will not come true.
However, as explained by SP, a leading expert of the National Energy Security Fund, lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, China’s refusal from American LNG is not such a problem for the United States. The main threat is low energy prices. And in order to raise them, Washington will not stop at anything, up to political pressure and local military conflicts. US attempts to take a leading place in Russia, of course, also will not pass by.
- The Americans are actively developing a program for the construction of LNG plants, which have already reached capacity of 30 million tons per year, – says Igor Yushkov.
- Closing the Chinese market alone does not mean closing American LNG projects. Everything will rest on price and markets.
– What does this mean?
– In 2016-2018, prices in Asian markets were very high, and gas went there, as well as to Latin American countries. If China refused American LNG under such conditions, supplies would simply be reoriented to the Japanese, Korean and other Asian markets. And those who previously supplied raw materials there would have spread to China, and nothing terrible would have happened.
The problem is completely different. High supply in the gas market, coupled with low oil prices, create a situation where the cost of gas has fallen dramatically in both Asia and Europe. And the cost of American LNG is quite high, it can only be compared with Australian. Any price drop for US LNG projects is a major blow.
I would even say that, paradoxically, the refusal of the Chinese to purchase American LNG plays into the hands of US manufacturers. After all, the remaining gas suppliers can raise the cost of LNG for China, which will push prices up in other markets. Thus, it will be more profitable for Americans to export their LNG to Japan or Latin America.
– That is, the trade war with China does not harm the American gas industry?
- Not certainly in that way. If we talk about a trade war with China, it is not the refusal of China to buy their gas that harms the Americans, but the general tension in the market. Traders believe that the parties will not be able to agree, which will lead to a slowdown in the global economy. This leads to a drop in energy demand and, consequently, a drop in prices.
– What about increased competition?
– There is a big wave in the world of discovering new fields and developing LNG projects, so the competition will be very strong. Not only Australian projects entered the market, but relatively small countries like Papua New Guinea. Russia is also increasing its production of liquefied natural gas at Yamal-LNG, and by 2022 new projects such as Arctic-LNG-2 will enter the market.
Fierce competition will increase, it will become a “new normality.” For Americans, this will be a big challenge, because in fair economic competition their projects are far from the best. They have high production costs, not the most profitable logistics.
Now the declared capacity of American projects is about 120 million tons per year. Most likely, not all of them will be implemented. But a part will enter the market and take its place there. We will have to compete with the Americans, but experience shows that we can successfully do this. And it is not a fact yet who will emerge victorious from this struggle if everything is within the framework of purely economic competition.
– And if this competition leaves the economic plane and goes into the political?
– The Americans really have numerous levers of pressure besides the economy, and they will more and more blatantly use them to push competitors out of the market. Everyone who has political skeletons in the closet should be wary, and this applies not only to Russia.
Washington is trying to impose sanctions against the Russian gas industry, and this process will continue. But other players can remember some things. For example, the same Turkmenistan, which the Americans initially supported and actively lobbied for the construction of the NABUCCO gas pipeline to Europe, could be charged with a lack of freedom and democracy and put on another “axis of evil” to prevent gas supplies to China.
And this is not to mention the military-political leverage. For example, what prevents Americans from hinting to friends from the Middle East that they can go north and cause instability there? After all, the militants from Iraq and Syria have not disappeared, they may well provoke a conflict in Central Asia. Similarly, the situation may be warmed up in the north and in central Africa, where oil and gas are also produced.
Another option is to provoke a conflict over Iran, which will result in problems with the Strait of Hormuz, through which Qatar exports almost 100% of its LNG.
As you can see, the Americans have a lot of political and military leverage in order to remove their competitors. The American shale revolution, the export of oil and gas will still give rise to many political conflicts until the local wars. Very turbulent times await us.
– An attempt to stop Nord Stream 2 – is part of this strategy?
– Yes, this is one of the examples when the Americans are trying to change the situation on the sales markets with political instruments. I think the story with Nord Stream-2 will end up being completed, but the Americans will continue to put pressure on Russia as a supplier. Yes, and Europe, the support of this gas pipeline will still come around, and very soon.
Most likely, Ukraine will not extend the transit agreement in 2020. Everything is going to ensure that Poland and Ukraine become markets for American LNG. Just yesterday, news appeared that the parties had almost agreed that American gas would be delivered to the Polish terminal in иноwinoujцеcie, then transported to the northeast and enter Ukraine. That’s what all this was up to. I note that this option is only possible if transit stops, when the pipes are empty. Obviously, this is what awaits us.
The Americans want to completely block transit so that Europeans cannot receive Russian gas and switch to alternative supplies. And alternative deliveries are American LNG. That’s the whole story. And these people for many years accused us of politicizing energy and using energy weapons. And now they are openly saying that all NATO allies need to acquire only American LNG, because it has “molecules of freedom”. I think we will still hear many such statements.
– What will be the consequences of such a policy for Russia?
– For Russia, all this, of course, is unpleasant, but already familiar. For Europeans, this turns into a tragedy. They are directly told that they must buy more expensive gas and pay for the political component of loyalty.
It will also be a tragedy for other suppliers that the US previously supported.
Now, at best, they will be forgotten, and at worst, they will put the wheels in the wheel, because the Americans do not need in Europe not only Russian, but also any other – Turkmen, Azerbaijani, Qatari – gas. They perceive Europe as their market. Even Norwegians may be advised to forget about gas and return back to their cod. Americans will perceive as competitors any suppliers of oil and gas.