Two Birds, One Stone: The Case for U.S. LNG Exports to China
It is a mutually beneficial partnership: the U.S. has liquefied natural gas (LNG) to sell, and China needs LNG to reduce its carbon emissions while continuing to grow its economy. However, steep Chinese tariffs make natural gas more expensive than other energy options, like coal. Lowering the tariffs and importing U.S. LNG promotes American exports, lowers China’s carbon emissions, and helps to grow the Chinese economy.
The U.S. is one of the top global exporters of LNG. In 2019, Qatar and Australia were the top two LNG exporters, followed closely by the U.S. To date, the U.S. has exported LNG to 37 countries and is on track to nearly double export capacity in the next 5 years.
The Chinese government has demonstrated an interest in transitioning from coal to gas in order to reduce carbon emissions and combat air pollution while meeting economic growth targets. Currently, China is the world’s second largest importer of LNG, second to Japan. In 2019, China’s LNG imports grew by 14 percent.
Climate activists oppose the U.S. export of LNG, arguing that natural gas is a fossil fuel that contributes to climate change. They want the U.S. to focus on reducing global emissions and promoting the transition to carbon-free sources, both at home and abroad. Natural gas, however, is cleaner than coal; roughly 117 pounds of CO2 are produced per million British thermal units (MMBtu) of natural gas compared with more than 200 pounds of CO2 per MMBtu of coal. The intermittent nature of renewables, such as wind and solar, requires a base load energy source. For this purpose, natural gas is a useful complement; gas plants can be ramped up quickly to compensate for some of the intermittency.
Developing nations, including China, view the potential conflict between reducing carbon emissions and economic growth differently than climate activists in the developed world. Developing nations are reluctant to sacrifice much growth for lower emissions, making substitution of natural gas for coal a critical part of their strategy. Substituting natural gas for coal is a win-win: it reduces China’s carbon emissions, which is what climate activists want, and it allows China to continue its economic growth.
The recent U.S.-China trade deal can assist with that substitution. The trade deal includes more than $50 billion in energy purchases over two years. The Chinese government has pledged to ease the 25 percent tariffs on imports of U.S. LNG. Yet, it is unclear when they plan to do that. Until then, Chinese companies will likely pass the import fees through to consumers, making natural gas less competitive in China. Additionally, the tariffs are likely to prevent Chinese buyers from committing to the long-term purchases U.S. LNG developers need.
The U.S. government should press the Chinese to address the steep LNG import tariffs and send a signal to LNG developers that China is a market for U.S. LNG exports. U.S. LNG sales to China help American companies, reduce global carbon emissions, and grow China’s economy. It’s a win for all.