This story was corrected May 17.
A provision in a new economic cooperation agreement with China clarified its status as an importer of US LNG that does not have a free-trade agreement with the US. The provision in the May 11 US-China Economic Cooperation 100-Day Plan stated that China would be treated “no less favorably than other non-FTA trade partners with regard to LNG export authorizations.”
It said, “Companies from China may proceed at any time to negotiate all types of contractual arrangement with US LNG exporters, including long-term contracts, subject to the commercial considerations of the parties.”
LNG exports to countries having an FTA with the US are automatically presumed to be in the national interest under the Natural Gas Act. Exports to non-FTA countries are subject to US Department of Energy reviews to determine if they similarly qualify. As of Apr. 25, the US Department of Energy had authorized 19.2 bcfd of LNG exports to non-FTA countries, the US Department of Commerce said as it announced the bilateral trade agreement.
Groups that have called for more US LNG exports welcomed the news. “The devil is always in the details, but I think it is a positive step both for US LNG suppliers and potential buyers in China,” Center for Liquefied Natural Gas Pres. Charlie Riedl said.
“If you look at what’s happening currently, we’re already exporting gas to China—9 cargoes since 2015,” he told OGJ. “But there is no contract agreement in connection with specific projects. All of the gas has gone there through third parties.”
The provision corrects a perception that the previous administration did not want to deal directly with China on LNG exports, Riedl said. “This provision says China will be treated no differently from any non-FTA country when it comes to buying US LNG. That’s a really strong signal to both sides of the table that this is something that potentially will increase US LNG sales to China,” he said.
A positive step
“I’m pleased to see the Trump administration trying to facilitate LNG exports to non-FTA countries,” Margo Thorning, senior economic policy advisor at the American Council for Capital Formation, told OGJ. “The one thing I think was missing was a commitment to speed the clearance process up to generate jobs and economic growth. This is certainly a step in the right direction.”
Fred H. Hutchison, executive director of two Washington LNG advocacy groups—LNG Allies and Our Energy Moment—also said the announced agreement’s provision dealing with LNG was very encouraging. “Although there are obviously many details to be hammered out, the fact that China would consider purchasing more US LNG to reduce its goods deficit with the US shows that government-to-government discussions can help foster greater commercial cooperation,” he said.
“US LNG exporters need to tap deeper into the Chinese gas market, and China needs the economic and environmental benefits associated with US natural gas,” Hutchison said. “This is a tremendous first step. Let's hope further bilateral announcements with Japan, [South] Korea, and other LNG-importing nations follow soon.”
The agreement potentially could shake up global LNG trade because it links the world’s leading supplier with the biggest growth market, said Massimo Di-Odoardo, who heads global gas and LNG research at Wood Mackenzie Ltd. in London. “By 2030, we expect Chinese LNG demand to reach 75 million tonnes/year—triple 2016 imports. This is equivalent to $26 billion/year at today’s prices ($7/MMbtu), and the US is keen for a slice of the pie,” he said.
The deal paves way for a second wave of US LNG investment in the longer term, 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,” he said.
The agreement also increases the pressure on competing suppliers, including LNG projects from Australia, East Africa, and Canada, as well as pipe and LNG projects from Russia, the analyst said. “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,” he said.
Contact Nick Snow at [email protected].
