Thoughts on China Reciprocal Tariffs on US Energy
China imposed a 15% tax on coal and liquefied natural gas and a 10% tax on crude oil as a retaliation to Trump's tariffs
On crude oil: I expect a muted impact on US crude prices as China’s imports of oil has plunged over the last year 46% due to less demand (higher EV usage, weaker manufacturing-China demand from all countries slipped 7.2%) and other BIG reason is that they are getting cheaper barrels from Russia and Iran. China oil imports from the US are around 26.6K bpd, which is not really a market moving amount.
On LNG: China imports of natural gas from the US reached its height in 2021 of 51,662 million cubic feet, however this also has plummeted to 10,693 million cubic feet after the Russian invasion of Ukraine and Russian gas flows that once went to Europe were redirected to China, thereby reducing the need for US gas. Obviously direct pipeline flows and LNG shipping costs from Russia to China are much less compared to the US.
In addition, with the LNG market, tariffs are a bit easier to circumvent as well through swaps. For example, Instead of directly exporting U.S. LNG to China (which incurs the 15% tariff), a USLNG producer can sell cargoes to a third party (e.g., a trader in Europe or another Asian country like Japan or South Korea), which then resells the cargo to China.
Again, a muted impact on US nat gas pricing.
On coal: The 15% tariff on US coal could lead to a decline in exports to China, adversely affecting U.S. coal producers. Companies such as Peabody Energy Corp. (BTU) and Alliance Resource Partners, LP (ARLP) may experience reduced revenues due to decreased demand from one of the world's largest coal consumers. Thus potentially leading to lower coal prices domestically and financial challenges for US coal producers, being that China is the largest coal importer in the world.
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