UPDATE: US Allows LNG Exports to China

(Adds analyst comment at end)

The US has finally allowed the export of LNG to China "no less favourably than other non-FTA trade partners with regard to LNG export authorisations. 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,” US department of commerce said May 11. Department of energy has capped natural gas export to non-FTA countries to 19.2bn ft³/d.

The announcement was part of the statement on the initial results if 100-Day Action Plan of the US-China Comprehensive Economic Dialogue released by the commerce department. About a month ago, the two countries' presidents, Donald Trump and Xi Jinping agreed at their Mar-a-Lago meeting to advance US-China economic co-operation with a 100-day action plan under the framework of the US-China Comprehensive Economic Dialogue.

China along with another Asian major LNG importer, India, is looking to expand the use of gas in its energy mix to tackle pollution. Just like India, China’s energy mix is about 6-7% gas, and the government is working to increase that. Although the government has been offering incentives to make domestic gas production attractive, rising demand has resulted in growth in LNG imports. 

Agreement helps balance trade: WoodMac

Commenting on the announcement, Wood Mackenzie's head LNG researcher Massimo Di-Odoardo said the agreement was a win for both sides. "It allows President 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.”

By 2030, WoodMac expects Chinese LNG demand to reach 75mn metric tons/yr, triple 2016 imports. This is equivalent to $26bn a year at today’s $7/mn Btu.

He also said the deal could increase pressure on competing suppliers in Australia, east Africa and Canada, as well as new pipe and LNG projects from Russia. "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. "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.”

Shardul Sharma