That’s the conclusion of Goldman Sachs analysts including Damien Courvalin. A tax like the one being discussed in the U.S. Congress would cause the dollar to appreciate, driving down the price of coal and liquefied natural gas, which are priced globally in the U.S. currency, they said in a Feb. 9 report.
Although U.S. LNG exporters would profit, American consumers would see minimal gains from lower global prices as they use little imported gas or coal, Goldman said. The plan may also spur deal activity in the U.S. as LNG companies seek to maximize the benefits of the tax. Canadian gas prices would have to fall relative to the U.S. benchmark at Henry Hub in order to remain competitive.
“A U.S. shift to a border tax adjustment would lower global coal and non-U.S. LNG production costs via the U.S. dollar appreciation channel,” Courvalin said in the report. “There would be little impact on U.S. gas supply costs and domestic coal-to-gas switching and as a result Henry Hub prices would likely remain unchanged.”
U.S. House Speaker Paul Ryan has pushed a plan that would cut the corporate tax rate to 20 percent and tax U.S. companies on their domestic income and imports, while exempting their exports and offshore income. That so-called “border-adjusted” plan has run into widespread opposition from retailers, oil refiners and other industries. Major exporters, including companies like General Electric Co., have expressed support. Goldman said it gives such a plan just a 20 percent chance of approval.
The impact would more immediately be felt on coal prices, where a higher portion of production costs are in local currencies. The wild card there, Goldman said, would be China, the world’s largest coal producer. It controls its currency, and if it appreciates in line with the dollar then coal prices won’t be affected. Goldman expects China will let its currency depreciate to make its exports more attractive, thereby allowing coal prices to fall.