China and the United States impose tariffs on each other, Japan and Europe are in a state of flux

China and the United States impose tariffs on each other, Japan and Europe are in a state of vitality

As the world’s largest exporter and importer of liquefied natural gas (LNG), the escalating tariff confrontation between the United States and China is shaking the LNG market. After China announced retaliatory tariffs, LNG imports from the United States are expected to drop significantly, and there is a high possibility that they will be resold to other markets. Amid the confrontation between China and the United States, Europe and Japan, which compete with China in LNG procurement, may unexpectedly get the opportunity to “benefit from the fisherman”.

On April 9, the European natural gas benchmark, the Dutch TTF (next month delivery price), calculated by the London Stock Exchange Group (LSEG), fell to the mid-32 euros per megawatt-hour, hitting the lowest price in about seven months since the end of July 2024.

The trigger was the Chinese government’s announcement on April 9 that it would impose an 84% tariff on all imports from the United States from the 10th. This is a countermeasure to the Trump administration’s previous tariffs on Chinese goods. Meanwhile, US President Trump announced that reciprocal tariffs on some countries and regions will be suspended for 90 days, but for China, which has implemented retaliatory measures, tariffs will be raised to 145%.

Liquefied natural gas (LNG) has been significantly affected. Due to the high tariffs, US LNG exports to China are likely to be effectively stagnant. As the first stage of countermeasures, China decided in February to impose a retaliatory tariff of 15% on LNG, which has now officially come into effect. According to ship tracking data from European research company Kpler, China has not received any unloadings of US-produced LNG since February 6. As long as the high tariffs are not lifted, this situation is likely to continue.

This is not the first time that China has stopped importing US-produced LNG. During the first Trump administration, trade frictions between China and the United States intensified, leading to China’s suspension of imports of US-produced LNG from April 2019 to March 2020.

China has learned lessons from the situation at that time and the subsequent Ukrainian crisis, and has attached greater importance to energy security in recent years and promoted the diversification of supply sources. Masanori Odaka, a senior analyst at Rystad Energy, pointed out that “China has gradually formed a situation where it does not need to rely too much on LNG imports by increasing domestic coal production and expanding pipeline natural gas imports from Russia.”

Compared with 2019, China holds many long-term purchase contracts for LNG produced in the United States. Due to the high tariffs required to import into the country, Chinese companies are likely to resell all the LNG in long-term contracts to other markets. At this stage, Europe is the most likely place to be resold. Because the climate in Europe is cold in the winter of 2024, the natural gas reserve inventory has dropped to a lower level compared with the previous year. In order to prepare for next winter, more LNG needs to be imported.

“The decline in China’s import demand due to high tariffs may result in an increase in LNG supply to Europe, thereby increasing downward pressure on European natural gas prices,” said Tsuyoshi Katayama, chief analyst at Kpler. According to Kpler’s analysis, if all resaleable U.S. LNG is diverted to Europe, including the long-term contract share of U.S. LNG that Chinese companies have just started to purchase in 2025, the resale volume to Europe in 2025 may exceed 4 million tons, about four times the actual resale volume in 2024.

Not only Europe is affected, but Japan may also be indirectly affected. As European natural gas prices fall, the price of LNG imported by Japan will also fall, which may eventually affect Japan’s electricity prices. As of April 10, the price of electricity futures (Tokyo market, next month futures) traded mainly by power companies in Japan has fallen to just over 11 yen per kilowatt-hour, a drop of nearly 20% from early February.

The actual electricity bills paid by Japanese consumers have risen since April, due to the end of government subsidies and the increase in “surcharges” to promote the popularization of renewable energy. Nevertheless, if LNG prices continue to fall in the future, it is expected that this trend will gradually be reflected in electricity bills, and Japan’s electricity prices are expected to fall.