President Trump: on course to increase US LNG exports (credit: Michael Vadon)
The 100-day action plan that China and the US agreed last night may alter global LNG trade, says analyst Wood Mackenzie, opening the former, the world’s fastest-growing import market, to the latter, which is tapping its shale gas reserves to become the world’s fastest-growing exporter.
The action plan falls under the framework of the US-China Comprehensive Economic Dialogue. It allows Chinese companies to negotiate long-term contracts to source LNG from US suppliers, according to the US Department of Commerce.
Wood Mackenzie head of global gas and LNG research Massimo Di-Odoardo said: “The wider agreement represents a win for both sides. It allows President Donald Trump to deliver on his pledge of redressing global trade imbalances and China to show its commitment to becoming an equal trade partner.
“Until now Chinese buyers have not bought long-term LNG supply from the US directly. This ensures US LNG entering the Chinese market will be politically palatable.”
He added: “The agreement connects the US, the fastest growing LNG supplier, with China, the largest LNG growth market. By 2030, we expect Chinese LNG demand to reach 75 million tonnes a year (mta), triple 2016 imports. This is equivalent to US$26 billion a year at today’s US$7/mBtu price, and the US is keen for a slice of the pie.”
The US already exports LNG to China. Trade data for March shows that the US supplied 7 per cent of China’s imported LNG. Last year, China imported 26 mta.
“In the longer term, the deal paves the way for a second wave of investment in US LNG,” Mr Di-Odoardo said. “Developers will now be able to target Chinese buyers directly, potentially supporting project financing. It could also support direct Chinese investment into liquefaction and upstream developments on US soil.”
The deal puts the Trump administration on course to grow US LNG exports. It has also pledged to speed up the environmental permitting process for new projects.
However, Wood Mackenzie believes the deal will also increase pressure on rival suppliers of LNG, including new export ventures in Australia, East Africa and Canada, and on Russia’s pipeline and LNG projects.
“It also undermines the niche that portfolio players, such as Shell, BP and Total, have found playing the middle man between US LNG exports and Chinese imports,” Wood Mackenzie says. “But ultimately, whether Chinese buyers line up for a second wave of US LNG will depend on its competitiveness versus other global alternatives and Chinese buyer appetite for exposure to US gas prices,” he said.