Natural gas provides for around 25% of all energy consumed in the EU and is an established, if controversial, feature of the EU’s Roadmap to 2050. Furthermore, the majority of EU gas is imported and increasingly so. Combining those two factors, price and security of supply are the main issues for EU member states. So the rise of the LNG market, diversifying supply and introducing competition, alongside traditional, piped gas should be a welcome tonic. With it comes a truly global dimension to Europe’s energy mix: the US, Russia, Norway and others vying for increasingly competitive European and Asian markets. According to Lukas Trakimavicius, the latest US/China trade showdown is providing a welcome shot in the arm for the EU’s gas strategy…

On June 1^st, China’s tariff hike on $60 billion (€53 billion) worth of American goods officially took effect. It increased the import duty from 10 percent to 25 percent on an extensive list of products, including liquefied natural gas (LNG). While the deepening trade row between two of the world’s leading powers poses a challenge to the global economy, the tariffs on LNG imports could prove to be a boon for Europe’s energy security.

Not long ago, it seemed that the US and China were a match made in heaven. On the one hand, thanks to its shale gas boom, the US became the world’s largest gas producer and is now on the verge of becoming a leading global exporter of LNG. On the other hand, there is China, which last year surpassed Japan to become the world’s largest natural gas importer and, according to some estimates, in 2022 it might become the world’s largest importer of LNG.

The deepening trade row, however, has so far undermined the potential for greater Sino-American energy cooperation. Whilst 23 cargoes of US LNG sailed to China in 2017 and 33 in 2018, as a consequence of last year’s 10 percent tariff hike, barely 4 cargoes of US LNG reached China so far this year.

On top of that, it is worth mentioning that many of China’s last year’s LNG cargoes left US ports prior to the tariff hike in September. This means that very few US LNG cargoes sailed to China after the tariffs took effect.

So what, if anything, does the latest hike mean for Europe, a net LNG importer?

In the short term, not very much. Due to a supply glut that has pushed LNG prices down globally and a low spread between European and Asian hub prices, Europe was already the largest buyer of US LNG in early 2019. In the first quarter of 2018, Europe imported some 0.3 million tons (MT) of US LNG, but after LNG prices in Asia fell sharply on lower-than-expected demand, this number increased to a total of around 3.2 MT during the first quarter of 2019.

If, however, China’s tariffs on US LNG imports remain in force for a longer period of time or if they become a permanent feature of the broader Sino-American trade relations, then this could have a much greater impact on Europe. In fact, it could mean that much more competitively priced US LNG could be heading towards Europe.

In the next couple of years, the overall US LNG export capacity will more than double and grow from 36.7 million tons per annum (MTPA) in 2018 to around 80 MTPA in 2021. In order to cope with the temporary loss of China and to stay financially afloat, US exporters will have to find alternative clients for their LNG.

This is where Europe comes into play. It has one of largest combined LNG import capacities in the world, estimated to be around to be around 230 billion cubic meters. Furthermore, given its decreasing domestic gas production capacity, its dependency on gas imports is expected to increase. Therefore, if the price is right, Europe could absorb a good chunk of the LNG that will hit the markets in the coming years and provide a life jacket to US exporters.

However, this is easier said than done. In order to secure a greater share of the European gas market, US LNG will not only have to successfully compete with LNG from other countries, but also with piped gas. Taking into account that US LNG exporters would have to compete with Qatar, which has one of the lowest LNG production costs in the world, and piped gas exporters, which, on average, have slightly lower delivery costs than LNG exporters, this will be no easy task.

Furthermore, established gas exporters will unlikely be willing to give up Europe’s gas market without a fight and they might try to keep US LNG out by lowering their prices.

Regardless which gas exporter gains the upper hand, Europeans might end up as the winners of such a price war. If China’s tariffs on US LNG imports would remain for the long haul, Europe could potentially benefit from increased competition between gas suppliers, diversification of supply routes, an increased security of supply and lower natural gas prices. In the end, even if the ongoing US-China trade row casts a shadow on the global economy, it could provide an unexpected energy windfall for Europe.

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Lukas Trakimavičius works at the Economic Security Policy Division of the Lithuanian Ministry of Foreign Affairs. Previously, he held several positions at NATO, where he worked on energy security, arms control and non-proliferation. The content of this article reflects the author’s personal views.