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US LNG industry gets welcome surprise

Trade deal between Trump administration and China opens up world's fastest-growing LNG supplier to world's largest growth market

The US domestic liquefied natural gas industry has been given a boost by a trade deal between US President Donald Trump's administration and China that is expected to make it easier to export production from the world's fastest-growing LNG supplier to the world's largest LNG growth market.

The deal, which covers a host of products including beef, poultry and credit cards, would also allow Chinese companies to negotiate long-term contracts with US LNG suppliers. 

That could in turn lead to positive impacts on project financing and support direct Chinese investment in liquefaction and upstream developments on US soil, consultant Wood Mackenzie, which was bullish on the deal, said in a research note.

WoodMac said the agreement has the potential to shake up the global industry, as it could place greater pressure on competing suppliers, including new LNG projects from Australia, East Africa and Canada, as well as new pipe and LNG projects from Russia. 

The deal also "undermines the niche that portfolio players, such as Shell, BP and Total, have found playing the middleman between US LNG exports and Chinese imports," WoodMac added.

Others admitted their surprise at the development, details of w.hich have yet to be made public, but agreed that it was positive for the US LNG export sector.

"I did not see that coming," MUFG senior analyst Michael McAllister admitted on a call with reporters this week.

"I don’t know how it will play out, but I think it is a pleasant positive to see a direct outlet for all the molecules to get to China," he said.

Centre for LNG executive director Charlie Riedl, who was also surprised but encouraged by the news, said he largely agreed with WoodMac’s analysis.

"It will be ultimately a positive development for some of those projects that are still looking for additional contractual volume," Riedl told Upstream. 

"It will also be a positive impact for projects that are still mulling over what they’re going to do, or who might be in pre-filing, who will be looking for additional investment dollars."

Others are taking a more cautious approach. 

MUFG senior analyst Barrett Blaschke said the US LNG industry was already projected to see some “"good growth" before the deal was announced.

MUFG expects the demand for US natural gas, including pipeline projects and LNG exports, could reach 80 billion cubic feet per day by the end of 2018, up from an average of 75 Bcfd today.

“There are still a lot of projects still to come, and I haven’t had a real thesis change because of that,” Blaschke said.

And as the market increasingly trends toward spot deals, some may no doubt question the agreement’s impact on finding new customers for US LNG exporters.

After the deal was announced, Cheniere Energy told Reuters it has had "extensive" talks with Chinese state-owned companies about increasing shipments of US LNG to China.

Cheniere has sold nine spot cargoes of LNG to China since it began exporting from the Sabine Pass terminal in Louisiana over a year ago, according to the report.

But Riedl believes there will always be a need for long-term contracts. He pointed to the planned $10 billion Golden Pass LNG terminal in Louisiana, which recently received regulatory approval to export up to 808 Bcf per annum of LNG for a period of 20 years, which begins when the facility comes online.

“They wouldn’t have applied for that term length of time if they didn’t think there was a market out there for long-term contracts,” he said.

76e33a24c1fe1b42eaf3d2a2186f298a Good business: Cheniere has sold nine spot cargoes of LNG since it began exporting from the Sabine Pass terminal  Photo: CHENIERE