I think we're past the point of word choice in describing the trade relationship between the U.S. and China. It's a trade war, and there are companies suffering and benefiting on both sides of the trade. One industry that fell into China's sights during its most recent round of tariffs was liquefied natural gas (LNG) from the U.S., which will now have a 10% import duty.

While some might be concerned that tariffs on U.S. LNG imports could put a severe strain on companies looking to sell the stuff, Cheniere Energy's (NYSEMKT:LNG) management doesn't seem overly concerned with the issue. Here's why Cheniere seems to think that this won't be too much of an issue for U.S. producers and why investors should be paying attention to this particular industry.

LNG export terminal.

Image source: Getty Images.

By no means a death blow

There's no way around it: China is the driving force in the global LNG market. That shouldn't come as too much of a surprise when it is the driving force for just about every commodity market on the planet. In 2017, China imported about 15% of U.S. total LNG exports. Because of the low cost and abundance of natural gas in the U.S., most analysts assumed that about 60% of the supply growth in this industry would come from the U.S. over the next decade, according to Thomson Reuters. If China were to impose restrictive tariffs on those exports, though, it could seriously hamper demand for U.S. LNG. 

This could be a major issue for America's largest natural gas exporter, Cheniere, not only because demand from China is a significant growth driver but also because several Chinese companies have a significant financial stake in Cheniere's facilities. 

On the company's most recent conference call (which was before China implemented those 10% import tariffs), CEO Jack Fusco appeared confident that the trade dispute wouldn't hamper either its current operations or its expansion plans

In the ongoing trade dispute, China recently added U.S. LNG to the list of prospective products which are being considered for a 25% import tariff. We are awaiting details of the proposed tariffs and are hopeful that the U.S. and China can resolve the trade dispute without these tariffs being implemented. That said, we don't foresee any economic impact to Cheniere as it relates to our existing long-term contracts with PetroChina, which helps support the financing of Train 3.

Train 3 is the third liquefaction process train at its Corpus Christi facility, which management gave the green light to build back in May.

The reason management seems so confident that these tariffs aren't going to be a significant hindrance to its business is that the investments the two countries have made on both sides of this trade are too significant to simply write off:

From a high level, our business is a very long-term one, and it is well understood that China needs more LNG over the long term. We view U.S. LNG as an important variable to help resolve trade issues as U.S. LNG into China is beneficial to both nations. Cheniere, along with our partners and stakeholders, have seen the economic benefits of U.S. LNG into China, thus represented over a $3 billion investment [in] Corpus Christi, and thousands of direct and indirect jobs that project is expected to create.

Another thing to consider here is that LNG is a commodity, one the U.S. can supply for a lower cost than almost every other supplier. With global LNG demand growing by 9% annually since 2015, there are few signs that it is about to slow down despite all this trade chest-thumping. So it's likely that this move will alter trade flows, but it might not do too much permanent damage to the trajectory of LNG.

LNG Chart

LNG data by YCharts.

Not yet a major concern

Of course, a company's management is going to try and paint this situation in the brightest colors possible for its investors. In Cheniere's case, the statements Fusco made about the U.S.–China trade war give the impression that the implications it will have on LNG are minimal at best. That could be a little overoptimistic, but one advantage for Cheniere is that more than 85% of its LNG is sold under take-or-pay contracts that last 20 years. It's hard to imagine Chinese energy companies terminating such long-term contracts with favorable pricing over a dispute that could last only a fraction of the duration of the contract. 

This is, of course, assuming that things don't escalate much from here and that cooler heads will eventually prevail in this trade war. If not, we might need to reexamine U.S. LNG, but until then, I think it's safe to say that Cheniere Energy and others in this business remain on the right track.