US and China open talks on scrapping tariffs on American LNG

China could eliminate its 15% tariff on American LNG as part of a larger package of energy and agriculture deals.

What: China’s 15% tariff on US LNG imposed in February 2025 could get lifted, bringing an end to an LNG trade impasse between the world’s biggest exporter and buyer.

Why: The lifting of tariffs on US LNG is part of a broader package of energy agreements and comes amid sky-high Asian LNG prices due to the Middle East conflict.

What Next: A restart of LNG trade would be a win for both sides as China grapples with reduced supply and the US faces increased competition to Asian markets from Canada and Mexico.

Discussions are underway between China and the US to potentially lift tariffs on US LNG, Reuters reported on September 18 citing sources familiar with the matter.

The news comes ahead of Chinese President Xi Jinping’s visit to Washington on September 23. The lifting of tariffs on US LNG are one part of a broader package of agreements the two sides hope to sign in the energy and agriculture sectors, which sources told Reuters would eliminate tariffs on around $30bn worth of goods.

LNG trade between the US, which is the world's largest exporter of the super-chilled fuel, and China, the world's biggest importer of LNG, has been at a standstill since February 2025 when Beijing imposed a 15% tariff in retaliation for US tariffs on Chinese products.

With China no longer a destination for American LNG, the US has been sending the majority of its exports to Europe. In August, 55% of US exports were delivered to European countries.

However, the US is keen to diversify its export markets as Europe is seeking to move away from LNG in the long-term due to its ambitious climate targets.

Additionally, the EU’s incoming methane regulations on January 1, 2027 could make a substantial amount of US LNG at risk of not being able to be imported. A report by Wood Mackenzie found that about 43% of natural gas imported into the EU in 2024, could be non-compliant with the new regulations.

Meanwhile, the US is slated to add a substantial amount of new LNG supply to the global market in the coming years. A handful of new projects or expansion stages are expected to be completed by the end of next year by the US’s top two exporters Cheniere Energy (NYSE: LNG) and Venture Global (NYSE: VG), as well as by supermajor ExxonMobil (NYSE: XOM), Sempra (NYSE: SRE), and NextDecade (NASDAQ: NEXT). In total, US LNG exports are expected to jump by as much as 10bn cubic feet (283mn cubic metres) per day by the end of 2027.

However, with Europe seeking to eventually wean itself off LNG, particularly LNG that does not meet its methane requirements, the US needs to find a home for the upcoming increased supply, and it will face increased competition in Asia from fledgling producers Canada and Mexico. Both countries possess export terminals on the west coast, which provides a fast, direct, and inexpensive path to ship LNG to Asia.

In June 2025, Canada shipped its first LNG cargo and South Korea was the destination. Japan, China, and the Philippines have also been recipients of cargoes from the country’s flagship project, LNG Canada, but South Korea remains the largest buyer. Seoul is targeting importing 3.4mn tonnes of LNG from Canada in 2026.

Similarly, Mexico has also recently exported its first LNG cargo to East Asia. The Energia Costa Azul (ECA) LNG project located in Ensenada shipped its first cargo of the super-cooled gas to South Korea in July. If a final investment decision (FID) on Phase 2 of the project is made, it would expand production capacity by an additional 12mn tonnes per year (tpy) from its current capacity of 3.25mn.

The US has caught a break, profiting significantly from supply from Qatar and the United Arab Emirates being sidelined by the closure of the Strait of Hormuz by Iran. The closure of the strait has taken about one-fifth of global LNG supply off the market leaving countries to clamour to the spot market and pay exorbitant costs for US cargoes.

And even when the strait is opened up, Qatar will be down about 17% of its supply as attacks on Trains 4 and 6 at the Ras Laffan Industrial Complex have knocked out 12.8mn tpy of supply. Repairs were initially estimated to take three to five years, but with Qatar now holding talks with US firms for LNG deals through 2031, damage may be more severe than initially believed.

The US exported a record 111mn tonnes of LNG in 2025, the first time ever that a country has surpassed exports of more than 100mn tonnes. Another record-setting year appears to be on the cards since the world’s second largest LNG exporter, Qatar, has had its supply sidelined for much of the year due to the Middle East conflict.

And 2027 is also shaping up to be a strong year for US LNG exports. The EU’s 19th sanctions package banning Russian LNG imports in January 2027 means that US LNG will be leaned on to make up the difference.

However, in the mid-term US LNG exports could start to face more competition from exporters Canada and Mexico and European markets could be more difficult to get supply into due to strengthened environmental regulations. Amid this backdrop, Washington is hoping for a breakthrough in trade talks with Beijing to reopen a critical market for its LNG.