U.S.-China tensions have bubbled up again, and commodity markets could be caught up in the turmoil, not least LNG. 

The U.S. move to no longer recognize Hong Kong’s independence from mainland China could lead to new tariffs and a potential collapse of the Phase 1 trade deal that promised $50 billion in U.S. energy purchases through 2021. That would be significant for U.S. LNG exporters, after deliveries to China resumed April 20 following a 13-month halt due to the impact of tariffs.

Despite major coronavirus-related lockdowns earlier in the year, Chinese LNG demand has recovered fairly robustly this spring, with imports averaging over 8 Bcf/d in May, a year-on-year build of 9%, according to S&P Global Platts Analytics data. The global LNG market will continue to look to China to be an engine for demand growth this year, helping to balance a historic supply overhang. Normalizing LNG trade relations with China would be critical to efforts by U.S. exporters to benefit from that recovery and by developers of new liquefaction terminals to secure financing for their projects.