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Asia’s LNG “Buyers Club” Is Shaking Up The Market

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The Battle For Natural Gas Dominance In Russia

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Is The U.S.-China LNG Deal Really A Win?

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Trump-Xi Deal Could Fuel A U.S. LNG Boom

LNG

When President Trump came into office, he openly resented the major trade deficit with Asia’s number-two economy and vowed to remedy the situation. While his words smacked of economic protectionism to many, the latest news about China-U.S. economic relations reveal a different picture.

While back in February the U.S. president talked about trade wars, last week he and Xi Jinping struck a deal that would see China receive more U.S. natural gas, as well as additional beef and poultry.

This week, the chairman of the China National Petroleum Corp., the largest state energy company, told Bloomberg in an interview that CNPC would gladly boost its U.S. oil and LNG imports. “The U.S. has very rich oil and gas resources, and as China pursues a diversification of its crude supply the U.S. will of course be one of the sources. We will consider exploring cooperation in areas such as jointly developing liquefied natural gas facilities and gas transport,” Wang Yilin said.

China can certainly do with the diversification, as its energy needs are growing inexorably. It is already the biggest buyer of U.S. crude, ahead of Canada, importing a total of 8.08 million barrels of oil in February. China imports this much oil on a daily basis, so in the scheme of things, US oil imports are a relatively small portion of the overall, based on China’s average daily import rate for the same month, but this figure will certainly grow with Beijing’s diversification drive.

The news is even better for U.S. gas. When the Trump-Xi deal was announced, shares in Cheniere Energy, currently the only LNG exporter in the country, jumped by 3.3 percent. The trade deal will likely provide a major boost for other LNG export hopefuls, too. However, not all will be easy.

First, China’s diversification is not necessarily focused only on the U.S. On the contrary, Beijing is unlikely to succumb to overreliance on one single source of energy. What’s more, U.S. LNG may find it tough to compete with supply from Australia and Qatar. All that without even mentioning the Power of Siberia gas pipeline that will see China import 38 billion cu m of gas annually, starting in 2025, strengthening ties between Beijing and Moscow.

In a recent report, the CNBC quoted analysts as suggesting the competition may prove too stiff. “China is much nearer and much cheaper to ship from Australia, for example, or Qatar,” said S&P Platts’ regional director for energy pricing, Alan Banniser. According to him, Europe is the most logical market for U.S. gas. Related: Oil Prices Set To Rise On Back Of OPEC Deal Extension

Wood Mackenzie’s Massimo Di-Odoardo, for his part, told the CNBC that the trade deal put the U.S. in a position to benefit from gas import growth to the tune of US$26 billion annually but he, too, was cautious, adding that this “will depend on its competitiveness versus other global alternatives and Chinese buyer appetite for exposure to U.S. gas prices.”

The average price per thousand cu ft of U.S. LNG in February was US$5.99, up from a trough of US$3.65 per 1,000 cu ft reached in October 2016 but much lower than the US$16.67 from November 2015. Prices fell sharply between November 2015 and February 2016 as a lot of new supply came online and a glut ensued.

The glut is still here, and there is no gas-related OPEC to try and do anything about it, so prices are bound to stay low for a while longer. For how long, it is difficult to say. The good news is that demand for LNG will grow – according to Shell’s first ever LNG Outlook, by 4-5 percent annually until 2030. Capturing a piece of the Chinese market may be a challenge but the rewards to be reaped sure look like it’s worth it.

By Irina Slav for Oilprice.com

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  • rjs on May 17 2017 said:
    the trouble with this theory is that the US no longer has an oversupply of natural gas...since hitting 4 trillion cubic feet in October, our supplies have fallen faster than normal for the 6 winter months, despite population adjusted heating demand that was 17% below normal...combine exports and electric generation expansion, and the US is heading for a shortage by next winter...
  • Tony Regan on May 17 2017 said:
    What new trade deal? There is nothing new here? US LNG producers can already export to China and Chinese buyers have always been able to purchase US LNG - if they wished to. Point is Chinese buyers have held back from making commitments to buy US LNG having seen how Japanese, Korean and Indian buyers rushed in and are now regreting it. You would not normally expect it to be commercially viable to contract with the supplier furthest way from you. The numbers just don't work - the US is an expensive source of LNG.
    Some spot cargoes of US LNG have gone into China and that may continue to happen particularly in the winter, but see it as most unlikely we will see Chinese buyers making term commitments to take US LNG. They just don't need it.

    Note the comment from CNPC. He talked about jointly developing infrastructure not about buying LNG.
  • Naomi on May 21 2017 said:
    The USA Gulf coastline is a contiguous natural gas field holding enormous resources. I am not sure whether transportation is a cost when you have limitless fuel for transport and the other guy will purchase whatever arrives. There would be opportunity cost in the home market. Yet selling abroad supports the home market price. Natural gas as fuel for transport is not a cost. USA natural gas costs continue to be half the world price.

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