Houston is known as the ‘Energy Capital of the world.’ Where oil once stood tall in the city and in the Texas economy, natural gas now offers huge opportunities for growth. Liquefied natural gas exporters have found an eager customer in China.
CGTN’s Hendrik Sybrandy reports.
“As they grow their economy, they want to meet that growth more with natural gas, renewables, less with coal,” Michael Maher with Rice University’s Baker Institute said.
He said while U.S. LNG exports quadrupled in 2017 over the year before, exports to China were six times as high during that same time period. China’s new 10 percent tariff on American LNG means that trend is unlikely to continue.
“It will have neither a large impact on China or the American LNG producers,” Maher said.
He expects China to buy more LNG from places like Qatar and Australia in the short term, and the U.S. to sell more to Japan, Korea and Europe.
“I think the big negative consequences are going to come in the long run,” said Steve Pressman, an economist with Colorado State University. He argued tariffs inject uncertainty into the economy, which companies don’t like.
“There’s just no telling where tariffs are going to be placed and when and that just makes doing business a whole lot more difficult,” Pressman said.
Maher believes new LNG export terminals may be more difficult to build in the future.
“Usually you have to get outside financing and they like to see those terminals backed at least by some long-term contracts,” he said. “China was an obvious place to get some long-term contracts with… To the extent China is reluctant to sign anything with the U.S. because of the tariffs that could slow down some projects.”
Only a few facilities currently export LNG in Texas and neighboring Louisiana. But a number of projects are on their way to completion. Already imposed tariffs on imported steel and aluminum have made their presence felt.
“We’re talking about multi-billion dollar investments and any change in the economics of those projects could put them in jeopardy and that’s something we take very seriously down here in Louisiana,” said Eddy Hayes, a trade attorney in New Orleans.
LNG companies contacted for this story would not comment on the new tariff. In a statement, the Louisiana Energy Export Association said it “represents an industry that trades in a global commodity and embraces free trade practices.”
New export projects would help ease the glut of natural gas that’s kept the price of this commodity relatively low. Maher worries prices will stay low if tariffs slow global economic growth and cause countries like China to consume less energy.
“That means the world will need to supply less, that will come back to impact the United States’ producers of LNG,” he said.
Until recently, Maher added, oil and gas were some of world’s most freely traded global commodities. Places like Houston benefited. Some wonder if that will still be true in the future.