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China keeps LNG off tariff list for now

BEIJING (Reuters) - China’s omission of liquefied natural gas (LNG) from its vast list of U.S. products that face hefty import duties from Friday has preserved a potential weapon should the trade war with Washington deepen.

It also underscores Beijing’s desire to ensure supplies of gas as it pushes to switch millions of households and businesses away from using coal as a key part of its ‘war on pollution’.

China will on Friday impose tariffs on $34 billion of U.S. goods from pork to soybeans to cotton in retaliation for a similar move by Washington as trade relations sour between the world’s top two economies.

“If the (trade) war escalates, (I expect) the government will not hesitate to add LNG,” a state oil and gas company executive said, declining to be identified due to the sensitivity of the issue.

Although U.S. LNG supplies to China have so far been tiny in volume and value compared with the around $12 billion per year of U.S. crude that arrives in the country, analysts say those levels could be set to shoot up as Beijing forges ahead with its battle to clear its skies.

Morgan Stanley has estimated annual Chinese imports of U.S. LNG could rise to as much as $9 billion within two or three years, from $1 billion in 2017. The amount could be even larger if the United States resolves a logistics bottleneck.

That would go a long way to helping balance China’s trade surplus with the United States, a major bugbear of Washington’s in the trade dispute. But the strategy also hands Beijing another weapon in its arsenal if the spat deteriorates further.

China’s Commerce Ministry did not immediately respond to requests for comment.

However, some industry sources said the country would feel the impact of any increased tariffs on U.S. LNG, as there are a limited number of major alternative suppliers.

“If we impose tariffs on U.S. LNG, we pay a much higher opportunity cost,” Mei Xinyu, a researcher at a think tank affiliated with the Commerce Ministry told Reuters.

“It is easier for China to switch into other suppliers in the soybean market. Duties on soybeans hurt the U.S. more, but duties on energy products would hurt both sides.”


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