U.S. companies have plans for even more liquefied natural gas (LNG) export trains and facilities to come online in the coming years, and this winter’s surge in Chinese LNG demand and imports underpins a second wave of LNG investment in the United States, analysts and company executives believe.
The Chinese push to cut pollution and make millions of households switch to natural gas from coal for heating resulted in China becoming the world’s second-largest LNG importer in 2017, outpacing South Korea and second only behind Japan, the U.S. EIA said last month. Chinese LNG imports surged 46 percent last year. And while China increased its domestic production and pipeline imports last year, it was not enough; natural gas shortages in northern China led to record levels of LNG imports during the winter. Overall, natural gas imports accounted for 40 percent of China’s 2017 natural gas supply, and LNG made up more than half of those imports. True, China is planning to hit an all-time high for natural gas production this year, which includes raising the share of gas in its energy mix–still, domestic production growth will be woefully insufficient compared to its soaring consumption.
So, the United States is all too happy to step in to supply part of that demand.
Cheniere Energy is one such supplier, which signed last month two long-term deals–through 2043–to supply LNG to China National Petroleum Corporation (CNPC), with the LNG price indexed to the Henry Hub price plus a fixed component.
“We expect these agreements to support the development of Corpus Christi Train 3, and we are now focused on completing the remaining necessary steps to reach a final investment decision later this year,” Cheniere’s President and CEO Jack Fusco said.
Earlier this month, Fusco told CNBC that this is “just the beginning of a long-term relationship” with China, noting that Cheniere already has four operational trains, with another three trains coming online shortly.
Since Cheniere started exporting U.S. LNG in February 2016, Latin America and Asia have been the two leading destinations for American exports, but recently, every “spare drop” was shipped to China, Fusco told the CERAWeek conference in Houston this week.
Between February 2016 and December 2017, China was the third-largest market for U.S. LNG–behind Mexico and South Korea–accounting for 13.5 percent of all U.S. LNG exports, U.S. Department of Energy data shows.
The growing Chinese appetite for natural gas could justify new LNG export facilities investment in the United States where natural gas is cheap and abundant, executives and analysts concur.
“As we saw this winter, demand in Asia and China kind of surprised the market. What we saw was supposed to be a market that might not be hitting supply-demand balance until the mid-2020s,” Kevin Brown, research analyst at Tortoise Capital Advisors, which is a shareholder in Cheniere, told CNBC.
“It’s at a place now where we see the balance coming maybe earlier, in the 2020s, pushing people to have to make that second wave of LNG investment,” Brown said.
“We are on the precipice of the first time I’ve seen in my career when we have demand-pull and supply-push happening at the same time to support almost $200 billion in infrastructure investment that’s needed in the U.S.,” Meg Gentle, president and CEO of LNG company Tellurian, told CNBC. Tellurian was co-founded by Charif Souki, who also founded Cheniere and was its CEO and president until December 2015.
Future investment in more U.S. LNG export infrastructure is expected to pay off in the long term because global natural gas demand will only rise, and China will account for 40 percent of that demand growth until 2022, the International Energy Agency (IEA) said. On the other hand, the United States–the world’s largest gas consumer and producer–will account for 40 percent of the world’s extra gas production to 2022 “thanks to the remarkable growth in its domestic shale industry,” the IEA estimates.
While U.S. domestic demand for gas is growing, more than half of the production increase will be used for LNG exports. The United States will be on course to challenge Australia and Qatar for global leadership among LNG exporters by 2022, according to the IEA.
Vying for global leadership in LNG exports, the United States is on course to boost its export capacity and meet a growing share of the booming Chinese gas demand.
The United States Natural Gas Fund, LP (UNG) was unchanged in premarket trading Monday. Year-to-date, UNG has declined -2.49%, versus a 4.50% rise in the benchmark S&P 500 index during the same period.
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