U.S. Liquefied Natural Gas To China Is A Game-Changer

The U.S. and China have announced the initial steps in their 100-Day action plan of the Comprehensive Economic Dialogue, inviting Chinese companies to negotiate long-term contracts for liquefied natural gas (LNG) shipments from U.S. suppliers.

This is a really big deal.

LNG is the fastest growing major energy market, the U.S. is the fastest growing exporter, and China is the largest incremental consumer (with nearly a $30 billion market by 2030). Since LNG exports from the contiguous U.S. began in February 2016, about 10 of our cargoes have reached China, but only sold on the spot market.

In March, U.S. supplies accounted for 7% of China’s LNG imports. Now, a few Chinese companies, such as Unipec, Sinopec’s trading unit, are considering long-term LNG contracts with the U.S. starting sometime around 2022, right about the time when the current global LNG glut is supposed to have cleared.

LNG is the driving force behind the expectation that the U.S. will become a net exporter of natural gas next year, an unthinkable evolution just a decade ago. The potential agreement between the world’s two largest economies and energy consumers would help install a second wave of investment in U.S. LNG terminals. Natural gas, after all, is the clear winner under the Paris climate accord and various environmental policies.

Our supplies reaching Asia are now more practical thanks to the June 2016 expansion of the Panama Canal that lowers shipping times and prices. Asia (including India) accounts for some 70% of global LNG demand. Our only current LNG export facility, Cheniere Energy’s Sabine Pass in Louisiana, will soon be joined by other terminals also along the Gulf Coast and in Maryland.

Coal-based China is continually turning to cleaner natural gas to help clear its notoriously hazy skies: Air pollution a major concern in China: Pew Research Center. And with currently few areas to increase domestic gas production, China will continue to step up imports of LNG, rising 35% last year. Qatar and Australia respectively supply 35% and 20% of China’s LNG imports, but both confront major issues. Qatar hasn’t been expanding export capacity, and is expected to continually lose global market share. Australia faces ongoing cost overruns and a domestic supply shortage that has many calling for a slowdown/shutdown of LNG exports. Neither have the massive incremental production potential that the U.S. enjoys.

At the end of 2016, China had some 15 LNG terminals with nearly 7 Bcf/d of import capacity, and this will double by the early-2020s. Although China is currently third globally and only imports about 33% of what leader Japan does, China is surely the bigger incremental market. Japan, for example, actually has a declining population rate, is trying to re-vamp nuclear power generation, and is quietly using more coal.

As for the global LNG market, today’s demand of 36 Bcf/d is expected to grow 4-6% per year through at least 2030. China and India are obviously the fastest growing users: China now accounts for about 12% of global LNG imports, with India at 8%. And why not? LNG spot prices in Asia per MMBtu have collapsed 70% to some $5.50 in the past few years, making natural gas reliance more attractive. But, I do see prices rising again, opening the arbitrage door for U.S. suppliers.

Let’s be clear though: although the entrance of the U.S. onto the global LNG market is a game-changer, so would China starting to domestically produce more of its own needs, namely from vast shale formations. Despite some major challenges like water and infrastructure shortages, China is slowing moving forward and has some of the highest shale potential in the world (estimated at a whopping 1,115 Tcf). China Reports 50% Jump In March Shale Gas Production.

U.S. LNG is also a crucial way to buffer the rising influence of Russia, which is easily the largest gas exporter in the world and supplied a record 34% of Europe’s gas last year. We can capitalize on the long struggles of Russia to supply large amounts of energy to China, basically because the two have been unable to agree to prices.

U.S. LNG can also help developing nations meet their clean energy goals outlined in Paris in December 2015, because importantly it’s this group of countries (holding over 85% of humanity) that have the highest incremental energy needs. Supplying poor nations with modern, cleaner fuels like LNG is vital to improving the human condition while also reducing global GHG emissions: Remembering Stockholm: The Environment is People and Their Necessity for More Energy. As the most energy-rich nation on Earth, we have the moral obligation to do our part.

Source: Hellenic Shipping News Worldwide

Related Post
The Qatari Emir, Sheikh Tamim bin Hamad al-Thani, opened the new Hamad Port, in Umm
British parliamentarians and experts have suggested that the conference, which Qatar is preparing to organize
His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy