Australian LNG exports to China remain strong, despite ongoing dispute

Australian liquefied natural gas (LNG) exports to China remain intact for now, despite the ongoing economic tensions between the two countries.

However, the situation could change due to the rising tensions between Australia and China.

Earlier this month, China’s National Development and Reform Commission (NRDC) indefinitely suspended the economic dialogue with Australia.

NRDC noted that “recently, some Australian Commonwealth Government officials launched a series of measures to disrupt the normal exchanges and cooperation between China and Australia out of Cold War mindset and ideological discrimination”.

The decision follows Australian calls for probe into the origins of the COVID-19 virus, banning the Chinese tech company Huawei from developing its 5G network in the country.

The economic spat was expected to spill into the LNG trade which was valued at $10 billion in 2020. China imports more than 40 per cent of its LNG volumes from Australia.

During the month of March Australian LNG exports reached a record 7.2 million tonnes, mostly on the back of Chinese appetite. Out of the total 105 cargoes, Australian LNG export projects shipped in March 2021, 37 landed in China, a report by energy consultancy Energy Quest showed.

However, Bloomberg recently reported that Chinese government officials issued verbal orders to at least two of its compatriot LNG importers to avoid buying Australian LNG cargoes throughout the next year.

However, smaller LNG buyers account for only 10 per cent of the total LNG imports from Australia. The majority of volumes are imported by state-owned giants who are yet to receive similar orders, which could mean that the LNG trade will face limited impact.

Australia’s three projects on the Curtis Island near Gladstone have shipped a total of 30 cargoes during April 2021.

According to the information provided by the Gladstone Ports Corporation, the volumes totaled 1.99 million tonnes. out of the total, 1.37 million tonnes of LNG landed in China.

There is a slight drop in terms of LNG volumes delivered to China from March 2021 when a total of 1.44 million tonnes landed in China. In total, the three Curtis Island facilities exported 30 cargoes, amounting to 1.98 million tonnes of LNG.

During the month of March 2021, Australian LNG projects shipped a total of 2.96 million tons of LNG to China.

April volumes are expected to remain above 7.01 million tonnes, however, it is expected that May figures could drop month-on-month. The slip in Chinese imports of LNG from Australia is expected to be hampered by rising price of LNG landing in China which was reported at $8.5 per mmBtu in April, lower production from Australia, as Darwin LNG went into maintenance and rising shipping costs.

While current impact on Australian LNG exports to China remains limited, it is unsure whether China could take a harder approach.

To remind, in 2019, China imposed a tariff hike on goods imported from the United States, with tariffs on LNG imports set at 25 per cent. A year prior the tariffs were set to 10 per cent.

Speaking to Bloomberg, Credite Suisse Group analyst Saul Kavonic noted that the LNG trade between the two countries could be affected in the long term.

Chinese power stations have already been instructed to stop imports of Australian coal last year and, as noted LNG imports have also been targeted before in a trade spat with the United States. It is unclear whether the Chinese Government could take the same steps in its strife with Australia.

Kavonic noted that recently, Chinese buyers have avoided signing longer-term LNG deals with Australian exporters, adding that the situation could worsen should Chinese buyers start seeking ways to extract themselves from existing contracts.