China’s Energy Tariffs Shake Up Global Oil and LNG
China’s retaliatory tariffs on imports of U.S. crude oil, LNG, and coal will have a limited effect on Chinese purchases as Beijing’s oil and gas imports from the United States were modest, at best, even before the renewed trade war. However, the Chinese tariffs on U.S. energy, expected to take effect on February 10, have the potential to disrupt global commodity trade flows with impacts on other regional markets and on energy prices, analysts say. On the day on which the U.S. blanket tariff of 10% on all Chinese imports took effect, China responded with several measured retaliatory tariffs, including a 15% levy on LNG and 10% on crude oil imports from the United States. Considering the small volumes of U.S. oil and LNG ending up in China in recent months, the tariffs will not hurt either the U.S. or China too much in the near term, according to analysts. But the reluctance of Chinese importers to buy the more expensive American crude with the tariff is set to tighten the lighter sweeter crude markets as Beijing will seek alternatives to the U.S. crude and source more barrels from West Africa, for example. With the tariffs, China effectively killed U.S.-Chinese energy trade in the near term, Reuters columnist Clyde Russell notes. The impact on China is likely to be limited, as U.S. crude has most recently accounted for less than 2% of Chinese imports, while U.S. LNG has represented no more than 12% of all LNG imports into China in recent months, according to Kpler data quoted by Russell. In 2024, U.S. crude accounted for 1.7% of total Chinese crude imports, per Chinese customs data. That’s down from a 2.5% share in 2023. China could replace the U.S. volumes without much effort. But the recent crackdown on Russian oil trade and the expected “maximum pressure” campaign on Iran from President Trump could mean that China will have to tap more crude from the Middle East and West Africa, tightening the availability of these grades and driving up prices and shipping costs. The changes in the global LNG trade flows are expected to be bigger. China has long-term agreements with U.S. LNG exporters for deliveries beginning next year or in 2027. So far it has purchased a lot of American cargoes on the spot market. With a 15% tariff, the economics of buying spot LNG volumes just isn’t there—unless Chinese buyers take advantage of the flexible destination clause for U.S. LNG deals. Unlike Qatar, for example, U.S. LNG exporters allow reselling of cargoes as they are not bound by destination. Chinese LNG buyers are already sounding out other buyers in Asia and Europe about swapping U.S. cargoes for supply from elsewhere, anonymous traders told Bloomberg this week. However, in the medium and long term, if trade disputes continue and escalate, Chinese importers are unlikely to commit to long-term supply from new U.S. LNG export facilities, analysts say. This would be bad news for U.S. LNG developers who rely on capacity booked under long-term agreements before making final investment decisions on new export projects. “These tariffs on U.S. LNG directly undermine the Trump administration’s efforts to expand American energy exports and strengthen our geopolitical influence,” Charlie Riedl, Executive Director of the Center for LNG, a trade group representing many U.S. LNG exporters and developers, told Reuters. All of the above expectations could be swept aside if the trade war escalates and Trump pursues tariffs on Mexico and Canada, after the one-month pause, or on the European Union, which appears to be next on his list to address the U.S. trade deficit with tariffs. An escalating trade war between the U.S. and China, the world’s two biggest economies, could slow global growth and weigh on demand for commodities, including in the world’s biggest crude oil and LNG importer, China.
India’s natural gas production to peak in 2025, decline thereafter: Wood Mackenzie
India’s natural gas production is expected to peak in the current calendar year, after which it is likely to decline at a rate of 3.6 per cent annually until 2030, Wood Mackenzie said in a report. Besides, falling production amidst rising demand for the commodity—considered the best transition fuel—is expected to push up imports. India is likely to become the world’s third largest importer of liquefied natural gas (LNG), after China and Japan, by 2032, with inbound cargoes accounting for 75 per cent of its gas consumption. “We expect Indian domestic gas production to increase by 4.5 per cent and peak in 2025, then decline by an average 3.6 per cent annually over the next five years, due to structural declines in mature fields and delays in development of new projects,” the consultancy said. Falling production After 2030, production is expected to see a 9 per cent annual decline through 2040, driven by the exhaustion of mature fields and slower-than-expected discoveries, Wood Mackenzie said. “The narrative could change, however, if the Oilfields (Regulation and Development) Amendment Bill introduced in August 2024 is implemented effectively,” it added. Read: Natural gas: Key support ahead The bill aims to increase investment in oil and gas exploration and production. Key ultra-deepwater discoveries, such as UD-1 in the eastern offshore basin, could transform India’s gas landscape in the future, contingent on favourable policies, faster project execution and advanced exploration techniques. Exploration and production blocks‒OALP-VIII and OALP-IX‒were tendered in recent licensing rounds, but the participation of private players and international oil companies was muted, it pointed out. Rising imports India’s LNG imports totalled 26 million tonnes per annum (mpta) in 2024, accounting for more than half of the country’s gas consumption. “We expect LNG demand to continue to grow in the coming years, exceeding 37 mtpa by 2030 and 88 mtpa by 2050, as India’s demand for gas rises while its domestic production shrinks. By 2032 already, LNG should account for around two-thirds of India’s gas consumption and will become the third largest importer of LNG after China and Japan,” Wood Mac said. LNG consumption saw a whopping 11.5 per cent compound annual growth rate (CAGR) from 2022 to 2024, thanks to lower prices, a rise in industrial demand, subsidies for the Fertiliser sector and changes to pipeline tariff mechanism. Industrial gas demand, primarily from the fertiliser and refinery sectors, alone posted a 9 per cent CAGR in 2022-24. Greater gas availability for new industrial units and the potential expansion of refineries and petrochemical plants will boost Indian industrial gas demand to around 63 billion cubic meters (bcm) by 2040, it projected.
Good news for India? Crude oil prices to stay in $75-$80/bbl range over next six months
After a sharp rise in January 2025, global crude oil prices are expected to average between $75-$80 per barrel over the next six months. This trend is primarily driven by the new Trump administration’s plan to ramp up crude production, OPEC’s decision to maintain output levels, and no major disruption in Russian crude supply. Meanwhile, demand growth is projected to remain subdued amid a slowdown in major global economies, according to CareEdge Ratings. Indian Oil Marketing Companies (OMCs) saw a decline in their gross refining margins (GRMs) during the first nine months of FY25, averaging $4.80/bbl—down from $11.75/bbl in FY24 and $17/bbl in FY23. This drop resulted from reduced discounts on Russian crude and lower product cracks, particularly diesel, which had surged after the Russia-Ukraine war. Going forward, GRMs for Indian PSU OMCs are expected to remain in the range of $4-$6/bbl. Blended retail margins on petrol and diesel surged to approximately Rs 9/litre in Q3FY25, supported by lower crude prices and moderating GRMs. With crude oil prices expected to remain stable and GRMs staying within a narrow range, blended retail margins are projected to stay healthy at Rs 7-9/litre, creating potential for petrol and diesel price adjustments that have remained largely stagnant.