LNG trade at play in China dispute

With Australian commodities such as coal already facing Chinese import restrictions, could its LNG projects be next in Beijing’s crosshairs? Wood Mackenzie Asia Pacific vice chair Gavin Thompson said the potential for the dispute to impact Australian LNG exports to China was becoming clearer. He was commenting after the recent announcement by China’s National Development and Reform Commission (NDRC) that it had indefinitely suspended all high-level economic dialogue with Australia. "Australian LNG is essential to meeting Chinese demand, with volumes up 8 per cent already in 2021 and accounting for around 45 per cent of China’s total LNG imports. But could this be at risk?" he wrote in a recent comment piece. He said unconfirmed media reports suggested that smaller LNG buyers in China had been told that Australian spot LNG cargoes were now off limits. "If true, then while the impact will be relatively limited – China’s second-tier LNG importers only account for around 10 per cent of the country’s total imports – it would signify a further escalation in China’s use of trade in what is an essentially political dispute," he said. "Beyond this, Beijing could look to further impact Australian LNG exporters. "Given the volumes at stake, an import tariff similar to the 25 per cent slapped on US LNG exports in 2018 would likely be too painful for Chinese buyers and consumers. "But Beijing might consider moves to deter Chinese buyers from signing new long-term contracts with Australian projects. "This could be politically expedient, allowing Beijing to highlight its willingness to widen punitive actions on Australian exports, while having a minimal impact on China’s future LNG supply options given the relatively limited volume of Australian pre-FID supply." Despite such concerns, Mr Thompson said there was likely to be minimal impact on existing LNG contracts. "Australian volumes are essential to meeting China’s domestic gas demand, while several Australian projects have significant Chinese equity participation," he said. "Reported moves by Chinese buyers to invoke force majeure clauses in LNG contracts as the COVID-19 crisis first emerged in China in early 2020 ultimately made little progress. And while buyers may be unenthusiastic to repeat that experience, might efforts to renegotiate contract terms find fresh support in Beijing? " While Beijing would likely continue its selective restrictions on imports from Australia, Canberra was tightening rules on inward Chinese investment, Mr Thompson said. "As a result, Chinese M&A activity in Australia looks increasingly difficult. Without a tangible improvement in relations, for example, it looks very unlikely a Chinese company could acquire a significant LNG or upstream asset in Australia, either directly or through investment in a domestic company.," he said. "For sellers in Australia’s active upstream and LNG M&A market, this won’t come as welcome news." Chinese buyers on the hunt for future equity investment in LNG projects may look elsewhere, including Russia and possibly Qatar. "Sadly, trade disputes rarely end well," Mr Thompson said. "Despite both Australia and China benefiting hugely from their well-established trade in energy and natural resources, decades of trusted and reliable partnerships are being put at risk. To pull back from this, dialogue, not rhetoric, is needed – and soon."

LNG trade at play in China dispute

Industry Queensland

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