China’s Energy Tariffs Shake Up Global Oil and LNG

China’s retaliatory tariffs on imports of U.S. crude oil, LNG, and coal will have a limited effect on Chinese purchases as Beijing’s oil and gas imports from the United States were modest, at best, even before the renewed trade war.

However, the Chinese tariffs on U.S. energy, expected to take effect on February 10, have the potential to disrupt global commodity trade flows with impacts on other regional markets and on energy prices, analysts say.

On the day on which the U.S. blanket tariff of 10% on all Chinese imports took effect, China responded with several measured retaliatory tariffs, including a 15% levy on LNG and 10% on crude oil imports from the United States.

Considering the small volumes of U.S. oil and LNG ending up in China in recent months, the tariffs will not hurt either the U.S. or China too much in the near term, according to analysts. But the reluctance of Chinese importers to buy the more expensive American crude with the tariff is set to tighten the lighter sweeter crude markets as Beijing will seek alternatives to the U.S. crude and source more barrels from West Africa, for example.

With the tariffs, China effectively killed U.S.-Chinese energy trade in the near term, Reuters columnist Clyde Russell notes.

The impact on China is likely to be limited, as U.S. crude has most recently accounted for less than 2% of Chinese imports, while U.S. LNG has represented no more than 12% of all LNG imports into China in recent months, according to Kpler data quoted by Russell.

In 2024, U.S. crude accounted for 1.7% of total Chinese crude imports, per Chinese customs data. That’s down from a 2.5% share in 2023.

China could replace the U.S. volumes without much effort.

But the recent crackdown on Russian oil trade and the expected “maximum pressure” campaign on Iran from President Trump could mean that China will have to tap more crude from the Middle East and West Africa, tightening the availability of these grades and driving up prices and shipping costs.

The changes in the global LNG trade flows are expected to be bigger. China has long-term agreements with U.S. LNG exporters for deliveries beginning next year or in 2027. So far it has purchased a lot of American cargoes on the spot market. With a 15% tariff, the economics of buying spot LNG volumes just isn’t there—unless Chinese buyers take advantage of the flexible destination clause for U.S. LNG deals. Unlike Qatar, for example, U.S. LNG exporters allow reselling of cargoes as they are not bound by destination.

Chinese LNG buyers are already sounding out other buyers in Asia and Europe about swapping U.S. cargoes for supply from elsewhere, anonymous traders told Bloomberg this week.

However, in the medium and long term, if trade disputes continue and escalate, Chinese importers are unlikely to commit to long-term supply from new U.S. LNG export facilities, analysts say. This would be bad news for U.S. LNG developers who rely on capacity booked under long-term agreements before making final investment decisions on new export projects.

“These tariffs on U.S. LNG directly undermine the Trump administration’s efforts to expand American energy exports and strengthen our geopolitical influence,” Charlie Riedl, Executive Director of the Center for LNG, a trade group representing many U.S. LNG exporters and developers, told Reuters.

All of the above expectations could be swept aside if the trade war escalates and Trump pursues tariffs on Mexico and Canada, after the one-month pause, or on the European Union, which appears to be next on his list to address the U.S. trade deficit with tariffs.

An escalating trade war between the U.S. and China, the world’s two biggest economies, could slow global growth and weigh on demand for commodities, including in the world’s biggest crude oil and LNG importer, China.

By Tsvetana Paraskova for Oilprice.com