The US shale production boom and recovery of global oil prices following the global financial crisis of 2007-2008 created an attractive environment for new LNG projects. But continued investment and the trade routes that emerge from contracts between producers and consumers are subject to change, as we are witnessing now in the context of the increasingly acrimonious trade dynamic between the United States and China.

In August, China floated a 25 percent tariff on LNG imports from the United States in response to the mounting use of tariffs by the US Government against Chinese goods, a measure more politically motivated than economically justified. Market analysts expected immediate short-term effects in energy markets given that contracts to supply China for the winter months had not all closed. Reality seems to be a bit different than expected, however, for a few reasons, including:

China announced a lower 10 percent tariff in September, muting the price effects originally anticipated.

Market prices have shifted with rising prices in Europe and lower-than-expected prices in Asian markets.

Suppliers have also in some cases been able to take advantage of flexible contract terms to replace US LNG with LNG produced outside the US to fill contracts in China, evading the 10 percent tariff.

With prices in flux for major consumer markets, market analysts now must account for a new driver behind the seemingly ever-shifting investment scenarios for new LNG projects. Late last month Australia’s LNG Ltd. suspended a final investment decision expected this year on its Magnolia LNG terminal in Louisiana until the first part of 2019 to allow more time for resolution of the trade tensions between the US and China.