Bloomberg/ New York
US sanctions against a Chinese shipping giant could have serious unintended consequences for global trade, according to the top executive of a tanker company whose joint venture was ensnared by the penalties.
Teekay Corp shares tumbled in September after disclosing that its joint venture to ship Russian liquefied natural gas on icebreaking vessels was blacklisted by US sanctions. Teekay’s partner in the venture was partly owned by a COSCO Shipping Corp unit that was alleged to have carried oil to Iran.
For Teekay chief executive officer Kenneth Hvid, the incident underscored the risk of sanctioning the world’s second-largest economy.
“If we start completely sanctioning China, which is really what you are doing when you sanction COSCO, then you have real disruption in the world,” Hvid said in an interview in New York on Thursday. “Iran is one thing, China is a very different thing.”
Hvid said he spent two weeks in Shanghai trying to address the problem, which was ultimately resolved by COSCO changing its ownership structure of the LNG venture.
“This one surprised us,” and wasn’t on Bermuda-based Teekay’s radar as a potential risk, said Hvid, who was in New York for Teekay’s investor meetings, which had been delayed by the sanctions issue. “We were simply collateral damage.” Teekay’s LNG tankers are held by its Teekay LNG Partners LP unit.
Hvid said the episode hasn’t deterred Teekay from continuing to work with COSCO.
“We feel very confident that we have the right partner here and hopeful that this doesn’t happen again,” he said. China is the fastest-growing importer of LNG, becoming a key player in the global market for the heating and power-plant fuel. Gas trade has boomed worldwide with a surge of new export capacity and new buyers emerging to take advantage of low prices. Though Teekay got its start as an owner of oil tankers, LNG now accounts for 80% of its business.
The market for the fuel is increasingly shaped by geopolitics amid the US-China tariff war and the Trump administration’s push to sell American LNG to Europe, where some nations have sought to reduce their reliance on Russian gas. The globalisation of gas means that when a supply disruption occurs in one country, other nations can fill the gap, Hvid said. That’s what happened when Yemen stopped producing LNG in 2015 amid its civil war, freeing up Teekay tankers that were under contract there.
“The nice thing about owning ships is we don’t have sunk costs in the country,” Hvid said. “If that trade doesn’t work, we will put it on some other trade. It will transport oil or gas to other countries.”
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