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US LNG sellers buoyed by China trade talks

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Reuters are reporting that China’s interest in reducing its trade surplus with the US through increased energy imports could advance plans for US LNG plants.

Washington and Beijing stepped back from the brink of a full-blown trade war after talks last week, with the US appearing to set aside for now its demands that China revamp key planks of its industrial policy.

“China represents an enormous economic opportunity for US LNG and ethanol exports as both products will likely see dramatic demand growth in the coming years, during which time the US is also expected to dominate global export markets,” Katie Bays, energy analyst at Height Securities in Washington, D.C., said.

Bays estimated that substantial LNG sales commitments could bring in between US$20 billion and US$30 billion annually and ethanol sales could reach US$5 billion to US$7 billion annually. She noted, however, that the LNG and ethanol markets are not big enough by themselves to meet President Donald Trump’s goal of reducing the Chinese trade deficit by US$200 billion per year.

On 22 May, Cheniere Energy Inc said its board approved financing for an LNG unit, the first new approval in the US since 2015. The decision adds a third unit capable of producing 0.7 billion ft3 per day of LNG to its Corpus Christi, Texas, plant.

There are more than two dozen proposed US LNG plants waiting for customer commitments to reach a final investment decision, many of them looking to China for deals.

China overtook South Korea in 2017 as the world’s second biggest buyer of LNG behind Japan. The country, which imported 5.6 billion ft3 per day last year, is looking to buy more low-cost sources of energy, like gas, to reduce its use of coal and cut pollution.

Charlie Cone, LNG proprietary analyst for energy data provider Genscape, said at least 13% of total US LNG cargoes currently go to China. “We expect this number to grow as more US companies sign long-term agreements with Chinese buyers as their nation continues to develop its gas infrastructure,” Cone said.

Bays said a hold on the trade war could drive Chinese customers to sign new LNG contracts with Cheniere Energy’s Sabine Pass or Corpus Christi facilities, Sempra Energy’s Cameron, Freeport LNG, NextDecade Corp’s Rio Grande, or Pembina Pipeline Corp’s Jordan Cove.

“We see it as a positive development,” said William Daughdrill, director of health, safety and environmental matters at Delfin Midstream. The company’s chief executive was in Asia last week pursuing customers, Daughdrill said.

Delfin is proposing a floating LNG facility in the US Gulf of Mexico and aiming for a final investment decision as early as this year to go ahead and produce up to 13 million tpy of LNG for export.

“For us, it’s strictly been about marketing to China,” said Greg Vesey, chief executive of LNG Ltd, which is developing an LNG plant in Louisiana and another in Nova Scotia in Canada. It hopes to reach a final investment decision on the US project by year-end and begin exports in 2022, he said.

“If you look at some forecasts for 2035, there are really only two places that have significant increases in LNG imports. Europe goes up about 100 million tpy and China goes up about 200 million tpy,” Vesey said.

Texas LNG, which is proposing a 4 million tpy export facility in Brownsville, Texas, and has five early-stage agreements with Chinese customers, hopes to make a final decision next year, about six months behind its original goal.

“Sentiment in the LNG markets is heating up again,” said Langtry Meyer, co-founder of the company. He added, however, that Texas LNG was not considering developing an import terminal in China, which would likely be needed to expand US exports.

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