The natural gas market and related natural gas ETFs may fizzle if the U.S.-China trade war extends.
The United States Natural Gas Fund (NYSEArca: UNG) has gained 6.5% over the past month and rose 2.3% year-to-date as Nymex natural gas futures now trade at around $2.95 per million British thermal units.
However, the natural gas market could come under pressure as an escalating trade war could threaten foreign demand for U.S. natural gas in a period when an ongoing shale oil boom caused a surge in natgas supplies.
Some analysts argue that trade disputes could disrupt exports and slow new infrastructure expansions ahead, the Wall Street Journal reports.
In response to the latest round of U.S. tariffs, China proposed a 25% levy on liquefied natural gas, or LNG. Alternatively, China would get its gas fix from Australia, Qatar, Russia or its own domestic sources as the emerging Asian economy develops its own sources.
“China will look elsewhere in the world to source the commodities they need,” J. Alexander Blackman, senior executive at Standard Delta LLC, told the WSJ.
However, exports won’t be hit immediately, so analysts doubt tariffs would lead to a sudden swell in supply or depressed prices.
The worst case scenario would be if companies investing in U.S. export infrastructure cutback on plans due to the uncertain trade environment.
“There’s no way in the current environment that anyone’s going to be signing any deals,” Neil Beveridge, senior oil analyst at Sanford C. Bernstein & Co., told the WSJ. “It’s causing a big overhang on what can get done.”
The diminished capital investments would inhibit producers’ future ability to access international markets and potentially limit growth of the U.S. natural gas market as increased shale oil production generates an increasing amount of excess natural gas.
“I hope [the U.S.]will not lose the Chinese market,” Total SA Chief Executive Patrick Pouyanné said at the World Gas conference in June. The U.S. has “a very good place, a game to play in the LNG business. But the market is mainly driven by Asia and by China.”
For more information on the natgas market, visit our natural gas category.