Will China Import Natural Gas from the US in the Face of a New 'Trade War'?

China is the world's largest importer of natural gas, including liquefied natural gas. According to the General Administration of Customs of the People's Republic of China [1], as of the end of 2024, China's gas import volume amounted to 182.1 billion m3, of which 106.2 billion m3 was imported as LNG and 75.9 billion m3 via pipelines. China's import dependence last year was 43%, and has increased by 2 percentage points since 2022. China is the world's largest buyer of LNG. Every year, the country imports more than 100 billion m3 of gas in liquefied form from more than 20 foreign countries. Unlike other major LNG markets such as Japan and Korea, China's LNG market is growing dynamically: over the past 5 years (2020–2024), China's LNG imports have increased by an average of 4.6 billion m3 per year (with a significant decline in 2022 due to price volatility in the Asian LNG market). According to estimates by international oil and gas companies, China will be the leading driver of global LNG import growth in the foreseeable future until 2040 [2]. In this regard, foreign LNG suppliers view China as one of the most important and promising consumers, and many LNG production projects are guided by the country's energy demand indicators.

American LNG exporters are no exception and are seeking to conclude long-term contracts to supply liquefied gas to China. However, against the backdrop of escalating geopolitical tensions between the two countries and China's growing concerns about national energy security, as well as obstacles in coordinating export projects in the United States, competition between Chinese companies and other importers (primarily European countries), the prospects for large-scale imports of American LNG to China remain unclear.

According to the General Administration of Customs of the People's Republic of China [1], in 2024, the largest suppliers of LNG to China were Australia (36.3 billion m3), Qatar (25.4 billion m3) and Russia (11.5 billion m3), followed by Malaysia (10.7 billion m3), with the United States coming in fifth place, lagging significantly behind the leaders in terms of LNG supply volumes. In 2024, the volume of imports to China from this country amounted to only 5.8 billion m3. The share of American LNG in the Chinese gas market is small - only about 1%, its share in natural gas imports last year was 3.2%, in LNG imports - 5.5%. Gas from the United States is supplied to China mainly under medium-term and long-term contracts. To date, Chinese importers have signed 22 agreements with American suppliers with a total volume of 25.6 million tons (35.4 billion m3) per year, of which 8 contracts with a volume of 10.5 million tons (14.5 billion m3) are accounted for by 3 Chinese state-owned oil and gas corporations (CNPC, CNOOC, Sinopec). Part of the volumes from the United States may be supplied by portfolio suppliers (such companies as Shell, BP, TotalEnergies, etc.). A significant part of the contracts signed by Chinese companies with American suppliers have not yet entered into force. Thus, in 2024, Chinese importers had only 7 contracts with American exporters with a total volume of 5.1 million tons (7 billion m3). Many contracts of Chinese buyers with American counterparties come into force in the period 2026-2030. By 2030, the volume of current contracts will peak at 24 million tons/year (33.2 billion m3/year). Given that most contracts with American suppliers are signed on FOB terms, the fact that a contract has been signed does not necessarily mean that the gas will be delivered to China. For example, last year, Chinese buyers resold about 1.2 billion m3 of American gas outside of China. The redirection of almost a fifth of the gas volumes purchased under contracts with American suppliers was due to two main reasons: sufficient supply of gas from other sources on the Chinese market, as a result of which there was no shortage of natural gas on the local market in 2024, despite a significant increase in demand (by almost 30 billion m3 over the year); the possibility of obtaining additional profit for Chinese buyers by reselling American LNG in the markets of other countries (primarily the EU countries) at a premium. According to the General Administration of Customs of the People's Republic of China [1], in 2024, Chinese companies spent $44 billion on imports of liquefied natural gas, of which $2.4 billion was spent on imports of American LNG last year. The average pre-tax price of US gas at the Chinese border can be estimated at $580/t (or $420/mcm, or $11.8/mMBtu). At the same time, the average pre-tax price of imported LNG at the Chinese border last year was $575/t (or $415/mcm). Thus, the price of US LNG was slightly higher than the average import price. Chinese importers, having delivered LNG to terminals in China, sell the gas in two ways: by regasification and subsequent delivery to the pipeline system, or in liquefied form by road transport. According to the Chinese consulting company Oilchem ​​[3], in 2024, when selling LNG from terminals in liquefied form, Chinese companies incurred losses on each ton of imported LNG in the amount of 152 yuan (21.4 US dollars)/t, but when importing American gas, the losses were more significant and reached 231 yuan (32.5 US dollars)/t. It is worth considering that a number of LNG sources can offer Chinese buyers a lower price (for example, LNG from Australia in 2024 was supplied at an average price of 400 US dollars/t, or 290 US dollars/thousand m3 - 130 US dollars/thousand m3 cheaper than the American one).

Thus, to date, the role of American gas in the Chinese gas balance is balancing, and Chinese companies, when given the opportunity, seek to send gas from the United States to other markets in order to make a profit through resale or reduce losses on imports, giving preference to gas from less expensive sources or gas supplied under DES contracts when delivering to China.

During the first term of D. Trump's presidency (2016-2020), the United States and China were engaged in a so-called "trade war", which for the purposes of this study can be called the "first trade war". The reason for the "war" is as follows. The trade turnover between China and the United States is the largest in the world, and by the end of 2024 it amounted to almost 690 billion US dollars. However, China has a significant surplus in bilateral trade: the volume of Chinese exports to the United States reaches 530 billion US dollars, while the volume of American exports to China is only 160 billion US dollars. This picture in bilateral trade has been observed for several decades, but it became especially noticeable after China's accession to the World Trade Organization in 2001. The Trump administration sought to reduce the US trade deficit with China by introducing higher import duties on Chinese goods. The Chinese authorities responded with "mirror" countermeasures. In September 2018, in response to the US government's introduction of increased import duties of 10% on US$200 billion worth of Chinese goods, the Chinese Ministry of Commerce announced a decision to introduce retaliatory import duties of 5-10% on US$60 billion worth of American goods, including a 10% import duty on US LNG [4]. In May 2019, in response to the US government's increase in import duties on US$200 billion worth of Chinese goods from 10 to 25%, the Customs Tariff Committee under the State Council of the PRC announced the introduction of additional import duties of 5-25% on US goods. In particular, the import duty rate on LNG from the United States was increased from 10 to 25% [5]. Due to the fact that the vast majority of countries from which China imports LNG are included in the list of countries that are subject to the most favored nation trade regime, within the framework of which LNG imports are not subject to import duties, American LNG became the only one whose import was subject to a 25% duty.

As a result, American gas supplies to China were reduced to a minimum. During the “hot” phase of the “trade war” from May 2019 to April 2020, American gas was not supplied to China at all. Gas under bilateral contracts already signed at that time was redirected to third-country markets, including the Republic of Korea and Japan, even though some Chinese-American contracts were concluded on DES terms, which formally does not imply a change in destination. According to media reports, gas was redirected through swap transactions [6].

The delivery of American LNG to China resumed only after the signing of the so-called "phase one" trade deal between the United States and China in early 2020, which provided for a significant increase in the supply of energy products from the United States to China. After that, the Chinese authorities allowed Chinese companies to apply for a temporary exemption from paying increased duties, which local companies took advantage of [7]. In 2020-2024, LNG imports from the United States resumed, but supply volumes were unstable. In some years (in particular, in 2021), the volume of imports significantly exceeded the contractual obligations of Chinese companies due to the purchase of significant volumes of American gas on the spot market, while in other years (in 2022), on the contrary, it decreased to minimum values. In the period 2021-2023. Chinese companies signed a significant number of new medium-term and long-term contracts for the import of American gas. The "first trade war" between China and the United States generally had a negative impact on bilateral gas cooperation. China demonstrated that the import of American gas could be affected by the current situation in bilateral trade and economic relations, and also showed its willingness to sacrifice purchases of American gas to achieve foreign trade goals. In the situation of the introduction of increased tariffs on American LNG, Chinese companies completely stopped its delivery to China. The Chinese authorities traditionally pay increased attention to energy security issues, and the situation that arose around American LNG during the "first trade war" is certainly considered a likely scenario when concluding new agreements on gas cooperation with the United States.

After the start of D. Trump's second term as President of the United States, the American authorities declared a state of emergency at the southern border, which allowed them to announce, under the International Emergency Economic Powers Act and the National Emergencies Act in force in the United States, an increase in import duties on goods from China of 10%. In response, the Customs Tariff Committee under the State Council (government) of the PRC announced that, from February 10, 2025, China would increase the rate of customs duties on a number of goods produced in the United States. In particular, the import duty on LNG from the United States was increased to 15% [8]. Thus, American gas supplies to China once again found themselves in a situation of uncertainty, as during the "first trade war" (2018-2020). As of March 2025, LNG from the United States is the only source of gas to which China applies import duties at a rate of 15%. Moreover, the Chinese authorities have made a separate stipulation that Chinese importers cannot apply for exemption from paying higher customs duties.

According to already signed contracts between Chinese and American companies, in 2025 Chinese companies should receive 6.6 million tons of LNG (9.1 billion m3 of gas) from the United States, of which 90% – 5.9 million tons (8.2 billion m3) – on FOB terms, 0.7 million tons (0.5 billion m3) – on DES terms. The largest buyers of gas in the United States among Chinese companies in 2025 will be state-owned corporations CNPC, Sinopec and Sinochem. Based on the practice of the "first trade war", it can be reasonably assumed that imports of American LNG to China will temporarily cease until bilateral disagreements in the field of trade are resolved, and Chinese buyers will seek to redirect American gas to foreign markets as much as possible under already signed contracts. According to American media reports, after the Chinese authorities increased the customs duty rate on LNG imports from the United States, Chinese gas importers approached partners from European and Asian countries with a proposal to conduct swap operations with American LNG. In particular, portfolio players such as Vitol, Trafigura, Shell and other companies can assist Chinese importers in redirecting American gas to foreign markets [9]. If the costs of swap transactions for gas supplied from the United States to China under DES terms are significant, Chinese companies may initiate a refusal to purchase gas in the United States under already signed contracts. Companies from China and the United States may also discuss the issue of “dividing” responsibility for paying customs duties upon delivery to China, but negotiations on this issue, if initiated, may take a long time. The CNPC Institute of Economics and Technology predicts that by the end of 2025, the demand for natural gas in China will reach 454 billion m3, which is 32 billion m3 more than in 2024. At the same time, gas production in China is expected to be at the level of 260 billion m3, and natural gas imports - 202 billion m3. Natural gas imports are expected to increase by 20 billion m3 per year [10]. A significant portion of the increase in imports is expected due to the daily supply of natural gas from Russia to China via the Power of Siberia gas pipeline reaching the maximum contract level set in December 2024. In addition, at the beginning of the year it became known that China and Kazakhstan had agreed to increase the volume of gas supplies by 1/3 of the contract level.

However, Chinese companies may compensate for the loss of US gas imports by purchasing on the spot market, which could lead to a significant increase in prices on the Asian spot gas market. Some of the volumes will likely be replaced by swap transactions. A slight downward revision of the forecast for natural gas demand in China in 2025 cannot be ruled out either.

The Chinese-American gas cooperation is developing against the negative background of the regular escalation of the "trade wars". The new import duties that the Chinese authorities have imposed on American LNG in response to the actions of the Trump administration will likely lead to a complete halt in gas imports from the United States to China until the trade and economic disagreements are resolved. Directly affected in 2025 will be contracts for the purchase of 9.1 billion cubic meters of natural gas from the United States. Chinese companies will likely be forced to redirect gas under these contracts to the markets of other countries, primarily the EU, Japan and the Republic of Korea. With respect to some of the contracts that contain a destination clause (DES), negotiations on swap transactions will likely be initiated, or, if the cost of such transactions is economically unacceptable, Chinese companies may initiate a refusal to fulfill the contract with the payment of a penalty. In the long term, the "second trade war" may have negative consequences for gas cooperation between China and the United States. Chinese companies signing medium- and long-term contracts to purchase natural gas from the United States will be forced to take into account the risk of a possible interruption in American LNG supplies to China in the context of a new escalation of trade, economic and geopolitical confrontations.

This, in turn, will become an additional "negative" contribution to the Sino-American gas cooperation. Among the other "negative" factors already in the "piggy bank" of bilateral Sino-American gas cooperation are frequent statements by American officials and heads of American oil and gas companies about the possibility of stopping the delivery of American LNG to China in the event of a deterioration in bilateral relations [11]. Other negative factors in bilateral gas cooperation are the postponement of the launch of LNG export projects from the United States during the presidency of D. Biden (2020-2024), as well as the arbitration of Chinese companies with the American LNG supplier Venture Global over a claim for the latter's failure to fulfill contractual obligations [12].

Against this backdrop, Chinese companies may be interested in strengthening cooperation with gas suppliers that are not subject to immediate risks of interruption due to geopolitical tensions and “trade wars.” One such supplier is certainly the Russian Federation.