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Strategic LNG Accord

Cheniere Energy has been shipping Liquefied Natural Gas (LNG) from its Sabine Pass, Louisiana, facility to various countries around the world, including China. However, to date, there has never been a direct sale of a U. S. cargo of LNG to a Chinese entity.  “World Oil” reports that this is about to change due to a recent agreement that is part of the U. S.-China Comprehensive Economic Dialogue negotiated by the U. S. Department of Commerce and the Chinese government.

Massimo Di-Odoardo, with consulting group Wood Mackenzie, sees this as a win-win for both parties. Politically, the arrangement allows Donald Trump to make good on his promise to address global trade imbalances, and China to demonstrate that it is an equal trading partner.

Economically, the accord could alter global LNG trading by opening the door of the world’s largest LNG growth market, to the world’s largest LNG supplier. Di-Odoardo observed that “Until now, Chinese buyers have not bought long term LNG supply from the U. S. directly.  This ensures that U. S. LNG entering the Chinese market will be politically palatable.”

Previous sales of domestic LNG to China have been through Shell, BP, and Total, acting as middle men. They will likely be concerned that their role as brokers will no longer be needed.  Also, it is unlikely that other LNG suppliers to China, such as projects in Australia, East Africa, Canada and Russia will welcome the competition.

About 7% of China’s LNG imports this year have come from the U. S. Last year the Chinese imported 26 million tonnes of LNG.  However, this is expected to almost triple to 75 million tonnes per annum by 2030, and the new accord will enable U. S. exporters to compete in this market on an equal footing.

Di-Odoardo concludes, “But ultimately whether Chinese buyers line up for a second wave of U. S. LNG will depend on its competitiveness versus other global alternatives and Chinese buyer appetite for exposure to U. S. gas prices.”

However, it should be noted that the U. S gas market is relatively efficient and transparent, and thus far, pricing has not kept us from competing successfully in the global LNG market.

To read the article in its entirety, please go to http://www.worldoil.com/news/2017/5/12/wood-mac-us-china-agreement-connects-fastest-growing-lng-supplier-with-largest-lng-market .

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.