Ten days ago, China imposed retaliatory tariffs on U.S. energy imports and launched an antitrust investigation into Google, moments after U.S. President Donald Trump’s new tariffs on Chinese goods took effect. As part of the retaliation, Beijing announced a 15% tariff on coal and liquefied natural gas (LNG) products and a 10% tariff on crude oil, agricultural machinery, and large-engine cars. The tariffs took effect on February 10, signaling the start of another trade dispute between the world’s largest economies. Analysts at Standard Chartered have analyzed the potential impact of these tariffs on the U.S. energy sector.
According to Standard Chartered, China first imposed a 10% tariff on U.S. LNG imports in September 2018, which increased to 25% in June 2019. Some U.S. LNG imports continued under the 10% tariff, but none were subject to the higher rate. In February 2020, China temporarily lifted tariffs on LNG as part of an effort to de-escalate the trade war. After 11 months of no LNG shipments, the first U.S. cargo arrived in April 2020. Since then, LNG trade between the two countries has been relatively stable, with shipments occurring in all but three months over the next 59 months. The relationship between U.S. LNG producers and Chinese buyers has strengthened, with long-term contracts being signed. Notably, no long-term LNG contracts between the U.S. and China were established before 2021.
Despite the new tariffs, the effects on LNG trade may be limited. The U.S. currently provides less than 6% of China’s LNG imports, while China accounts for just 6% of U.S. LNG exports. European demand for U.S. LNG is expected to remain strong, so analysts at Standard Chartered believe the diverted shipments will not cause significant disruption. They predict that while the tariffs may reduce spot cargo shipments to China, long-term contract shipments may continue, depending on specific re-export clauses. However, analysts warn that the tariffs could affect the economics of future long-term contracts, particularly those already signed for up to 15 million tonnes per year.
U.S. Natural Gas Prices Rise Amid Strong LNG Demand
U.S. natural gas futures surged to $3.7/MMBtu, the highest level in three weeks. The price increase is attributed to lower production, rising LNG exports, and colder weather forecasts. Gas flows to major U.S. LNG export plants have averaged 15.3 bcfd in February, up from 14.6 bcfd in January, approaching record levels. On Thursday, daily LNG feedgas reached 15.9 bcfd, surpassing the previous record of 15.8 bcfd set on January 18. However, extreme cold weather has caused some wells to freeze, resulting in a 3.7 bcfd drop in daily gas output over the past week, reaching a two-week low of 103.0 bcfd. Weather forecasts predict colder-than-normal temperatures through February 22, increasing heating demand. The U.S. Energy Information Administration (EIA) reported that U.S. utilities withdrew 100 bcf of natural gas from storage during the week ending February 7, reducing inventories to 2,297 bcf, higher than the expected 92 bcf draw.
European Gas Prices Fall After Recent Surge
Meanwhile, European natural gas prices fell below €51 per megawatt-hour (MWh) on Thursday, down from a two-year high of €58.039/MWh on February 10. This decline is due to milder weather forecasts, which are expected to reduce heating demand. According to Gas Infrastructure Europe (GIE), EU inventories stood at 56.95 billion cubic meters (bcm) on February 9, which is 21.45 bcm lower year-on-year and 8.09 bcm below the five-year average. The week-on-week drawdown for the week ending February 9 was 4.9 bcm, 37% higher than the five-year average and nearly double the draw for the same period last year. The cessation of Russian gas transit through Ukraine accounted for most of the month-on-month reduction (1.47 bcm), with a smaller decline of 0.824 bcm from Norwegian flows.
Excluding transit flows, EU imports of Russian pipeline gas totaled just 1.362 bcm in January 2025, a 90% decrease compared to January 2021. Analysts at Standard Chartered predict that if temperatures in the northern hemisphere remain normal for the rest of the winter, EU inventories could end March at around 44 bcm. However, if larger-than-usual withdrawals continue, inventories could drop to 39.1 bcm by the end of the season. This would be 29 bcm lower than last year’s end-season levels, but still about 10 bcm higher than in 2022, following Russia’s invasion of eastern Ukraine.
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