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LNG Update

The liquefied natural gas (LNG) facilities built, or being built, in the U. S. were licensed to only export to nations with which we had Free Trade Agreements in place. Since no such accords existed with China, exports to that country were typically only on a spot sale basis through brokers.  While spot sales can often provide higher prices, sellers always prefer the stability of long term contracts.  In a previous post I mentioned that the U. S., led by Secretary of Commerce, Wilbur Ross, negotiated an agreement giving U. S. producers of LNG enhanced access to Chinese markets.  A recent article in “Oil Voice” by Easwaran Kanason, elaborates further on the deal.

According to Kanason, the new agreement has set the stage for a dramatic increase in U. S. LNG exports. Most long term LNG export contracts are indexed to oil prices.  However, U. S. contracts are indexed to Henry Hub, Louisiana, gas prices which are typically significantly lower.  Given this price advantage, and the promise of long term contracts, domestic exporters stand to compete very favorably against Qatar and Australia, the primary LNG suppliers to China.

To date, only Cheniere Energy’s Sabine Pass, Louisiana, facility is actually exporting LNG. In spite of being restricted to spot sales, Cheniere accounted for 7% of China’s LNG imports in March, 2017.  Currently, China imports 26 million tons a year, but consulting firm, Wood Mackenzie, predicts that this will increase to 75 million by 2030.

Qatar, Australia and Malaysia are all well positioned to serve the East Asia LNG market, but Japan, South Korea and Taiwan have also indicated that they are receptive to flexible, gas indexed LNG contracts. In addition to Asia, U. S. LNG is also finding a ready market in Latin America and Europe.  Cheniere will ship its first cargo to Poland in June, and many other European nations are receptive to any alternative to Russian pipeline supplied natural gas.

Access to the China market might result in a second wave of LNG projects in the U. S. and ultimately, our becoming a net exporter of natural gas for the first time since the Eisenhower administration.

To read the article in its entirety, please go to https://oilvoice.com/Opinion/4973/American-LNG-Expands-Globally?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29,

For additional detail and insight into the China accord, I suggest the short article at https://oilvoice.com/Opinion/5039/Trumps-trade-deal-with-China-would-allow-105-bcfd-gas-production-at-3-USDMMbtu .

Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide.  Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.