Chinese leader Xi Jinping is arriving in Washington this week for a diplomatic visit that could restart a critical energy partnership. The meeting provides an opportunity to restore a $6 billion annual trade in liquefied natural gas (LNG) that was halted by recent U.S. tariff policies.
The $6 billion bargaining chip and the 15 percent tariff
The current diplomatic tension stems from February 2025, when President Donald Trump initiated an aggressive tariff campaign during the early weeks of his second term. According to Bloomberg, these tariffs included a 15 percent levy on various foreign products, including LNG, which prompted China to respond with its own punitive duties on American energy goods. This trade war effectively stopped direct imports of U.S. LNG into China.
To avoid these costs, Chinese firms have not abandoned their contracts but have instead diverted LNG shipments to buyers in Europe and Asia. This maneuver allows Chinese companies to honor their legal obligations while circumventing the tariff bracket. Jane Nakano of the Center for Strategic and International Studies suggests that reviving this trade would help correct the bilateral trade imbalance and provide a stable revenue stream for the U.S. energy sector.
The 20-year commitment from China Gas Holdings
Signs of a thaw are already appearing in the private sector. China Gas Holdings recently announced a 20-year contarct to purchase U.S. LNG beginning in 2030, a significant move given the prevailing trade tensions. Bloomberg reports that other Chinese buyers have also engaged in non-secret discussions with U.S. exporters during a February gas conference in Bangkok, signaling a strong appetite for long-term commitments.
The financial incentive for these long-term deals is stark.. LNG delivery to Northeast Asia is priced at approximately $8 per million British thermal units under long-term contracts, whereas the spot market is typically three times more expensive. By locking in these rates, Chinese importers can hedge against the volatility of the current global gas supply crunch.
A strategic pivot away from Qatar and the Persian Gulf
For Beijing, diversifying its energy sources is a matter of national security. while LNG is a relatively small part of China's total energy mix, it provides a critical alternative to the Persian Gulf, where Qatar has recently been the primary supplier. By strengthening ties with U.S. exporters, China reduces its reliance on a single volatile region.
This energy-centric diplomacy echoes previous attempts at reconciliation. During President Trump's 2017 visit to Beijing,natural gas projects accounted for more than half of a $250 billion slate of announced agreements. While many of those 2017 initiatives were non-binding and eventually dropped, the 2020 Phase One trade agreement specifically tasked China with increasing energy imports to help raise total import figures by $200 billion.
Funding the Alaska LNG and Gulf Coast expansions
The U.S. energy industry is currently undergoing an unprecedented build-out of export terminals and pipelines that require massive capital. Projects such as the Trump-backed Alaska LNG operation and various Gulf Coast export concepts require firm, long-term purchase agreements before billions of dollars in investment can be committed.
The scale of the opportunity is significant; U.S . LNG exports to China expanded by 60% recently, and the U.S. is estimated to double those figures by the end of the decade. Because much of this new supply will not be marketed until the early 2030s, Chinese importers can sign contracts now that take delivery after the current Trump administration ends, thereby minimizing their exposure to further trade escalations.
The complication of Russian oil and gas sanctions
Despite the potential for a deal, a major legal hurdle remains in the form of a sweeping sanctions bill recently signed by President Trump. This legislation could empower the U.S. government to impose crippling tariffs on any country that continues to purchase oil and gas from Russia, which remains the second-largest LNG supplier for China.
The central uncertainty is how the U.S. will apply the timing and scope of these sanctions to Russian facilities that are already under U.S. sanctions. It remains unclear whether the Trump administration will grant China exemptions to facilitate the LNG deal or if the pressure to isolate Russia will override the desire to boost U.S. energy exports.
Comments 0