Asia Spot LNG Prices Surge Slightly Amid US-China Tariff Truce

Asia spot LNG prices surged in Week 20 amid a slight uptick in industrial sentiment, which supported demand.

The surge in Asia’s LNG Prices occurred following a 90-day tariff truce that the United States and China agreed upon during trade talks in Geneva, Switzerland.

The US and China reached a deal on May 12 to cut import tariffs on each other’s goods for 90 days, starting from May 14.

As such, the US agreed to lower its tariffs from 145% to 30%, while China’s retaliatory tariffs dropped from 125% to 10%.

Asian Spot LNG Prices

The average LNG price for July delivery into North-East Asia topped $11.75 per million British thermal units (MMBTU), up from $11.50/MMBTU recorded in Week 19.

The 90-day tariff truce has boosted industrial optimism across Asian energy markets. This détente has benefited the industries of China, Vietnam, Taiwan, India, Japan, and South Korea.

These countries’ industrial sectors depend on gas for power generation to supply electricity to their various industrial plants. They also rely on gas as a feedstock, especially for their petrochemical plants.

China’s LNG Strategy

Despite the slight surge in Asian LNG prices, China’s 25% tariff on US LNG remains in place, making US LNG expensive.

Consequently, Chinese buyers like CNOOC and Sinopec are reselling LNG cargoes from the United States to other countries in Asia and Europe, where demand remains robust.

Nevertheless, China continues to diversify its LNG sources away from the United States, with increased engagement with Russia and the UAE.

European Market Dynamics

In Europe, gas prices at the Dutch TTF hub remain range-bound between €34 and €35 per megawatt hour. Weaker demand amid warmer weather supports TTF prices. Europe remains a key destination for re-routed LNG cargoes from the United States. Primary European destinations include Spain, the Netherlands, France, and the UK.

Freight Rates

Regarding freight rates, while the Atlantic rates have declined sharply, Pacific rates have held steady.

Atlantic rates showed their largest week-on-week drop since January. On May 16, they were assessed at $32,500/day, while Pacific rates remained relatively stable at $22,250/day.

Arbitrage opportunities currently favour Asia through the Panama Canal. The Panama Canal remains a critical chokepoint for US Gulf Coast LNG heading to Asia.

However, the Cape of Good Hope route favours Europe. Due to the Red Sea Crisis, several LNG shippers are opting for longer routes around the Cape of Good Hope, which adds time and cost.

Impact of US-China Tariff Truce on LNG Trade

The 90-day tariff truce agreed between the United States and China on May 12 has temporarily eased trade tensions between the two largest economies. However, its impact on LNG trade remains limited.

Despite the tariff reductions, US tariffs on Chinese goods dropping from 145% to 30% and China’s tariffs on US goods falling from 125% to 10%, the 90-day period is insufficient for China to resume imports of US LNG.

China’s 25% on US LNG remains in place despite the tariff reduction agreed during trade talks. As a result, Chinese buyers, restrained by the 25% tariffs, are reexporting US LNG to Asian and European markets.

This strategy enables Chinese buyers to avoid the financial burden of tariffs. In addition, Asian and European countries that need LNG receive supplies to meet their energy demand.