US government encourages China on long-term LNG exports

12 May 2017 18:50 Source:ICIS

The US Department of Commerce announced measures encouraging US LNG exports to China following a meeting between the presidents of the United States and China in April.

The statement, issued on 11 May, laid out an initial 100-day plan that covered issues on trade, financial services and investment.

China is considered a non free trade agreement (non-FTA) export destination with the US. The US Department of Energy (DOE) has oversight in approving LNG export licenses to companies for non-FTA nations. As of 25 April, the DOE has approved 19.2 billion cubic feet (bcf)/day, or about 198 billion cubic metres/year, in total LNG exports to non-FTA nations. However, only Cheniere’s US Sabine Pass plant in Louisiana is currently exporting.

The first three trains of Sabine Pass are in operation, and a fourth train is in commissioning.

“The United States welcomes China, as well as any of our trading partners, to receive imports of LNG from the United States. The United States treats China no less favourably than other non-FTA trade partners with regard to LNG export authorisations,” the commerce department stated.

The announcement from the US administration has been welcomed by the industry as bullish support for additional LNG.

Marketing efforts to sign new long-term LNG contracts have stagnated as lower crude oil prices; incoming supply from new Australian and US projects; and demand uncertainty have kept prospective buyers on the sidelines.

Massimo Di-Odoardo, Head of Global Gas and LNG research at consultancy Wood Mackenzie, said in a statement on 12 May that in the longer term, the agreement could encourage a second wave of investment in US LNG.

“Developers will now be able to target Chinese buyers directly, potentially supporting project financing. It could also support direct Chinese investment into liquefaction and upstream developments on US soil,” he said.

No other financial investment decisions (FIDs) of additional LNG have been made by any US LNG projects since 2015.

Besides Sabine Pass, there are five other US LNG export projects under construction and due to come on line in the next few years:

• 5.3mtpa Cove Point in Maryland

• 2.5mtpa Elba LNG project in Georgia

• 13.2mtpa Freeport LNG project in Texas

• 13.5mtpa Corpus Christi LNG in Texas (planned)

• 14.95mtpa Cameron LNG project in Louisiana

Sabine Pass and all of the projects under construction have export approval to sell US LNG to non-FTA nations.

China does not have any long-term LNG contracts directly with any of the US LNG export projects.

However, UK-based BP and China’s China National Offshore Oil Corporation (CNOOC) have a 20-year contract for 1.5mtpa of LNG starting in 2019 that draws from BP’s portfolio supply. This could include BP’s 4.4mtpa offtake at Freeport LNG for Train 2.

In the short term, nine cargoes have been exported to China to date from Sabine Pass since Cheniere began exporting in February 2016. Out of 117 cargoes that have been loaded from Sabine Pass to date, this represents less than 8% of the cargoes exported from the US.

China imported 27.4mtpa in 2016 as the third-largest importing nation after Japan and South Korea, according to the 2017 report by the International Group of LNG Importers (GIIGNL).

Australia was the biggest supplier by volume to China, followed next by Qatar, Indonesia and Malaysia.

By Ruth Liao