Thu. Sep 29th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

February 13, 2022

It is a win-win-win success story. The US LNG industry, upstream and downstream, is doing very well now. That is good news for the USA. China’s energy security improves with abundant of LNG. LNG is a transition energy for combating global climate change, so more LNG is available and being used is better for the world.

It is a recent success story for the US, as the US just became the world largest LNG exporter in 2021. Currently, the tense Ukraine crisis has caused Europe to import LNG at any cost, it improves LNG exporters profit base. As long as the Ukraine crisis is not peacefully resolved, the US LNG industry will enjoy a very good deal from Europe.

It is encouraging to note that China has become a major LNG market player. It will increase market liquidity and improve energy security around the world.

China has limited domestic gas supply, but China has some advantages because it can import LNG from the USA, and at the same time import pipeline gas and LNG from Russia with long term contracts.

It is a very good advice for China: Analysts, however, said that Chinese companies’ long-term success hinges on whether they can better manage price risks, build shipping capability, and own a terminal asset in Europe.

The Ukraine crisis will end sometime, it cannot last forever. EU energy market will be profoundly changed because EU’s/NATO’s relationship with Russia will be fundamentally modified. So is the fate of Nord Stream II pipeline will have to be finalized.

US-China LNG trade is a good case for analyzing the relationship between the US and China. Just imagine, if the US-China trade war were peacefully settled, how much more LNG from the US could flow to China? On the other hand, if US-China relation keeps deteriorating, when will the flow of LNG to China stop? Or, when will China stop importing US LNG?

U.S. supplies give China muscle to become major force in global LNG trade

By Chen Aizhu and Marwa Rashad

SINGAPORE/LONDON, Feb 11 (Reuters) – Chinese firms are set to become a major trading force in the global liquefied natural gas market in coming years, thanks to liberalisations at home and recently signed long term contracts for record amounts of LNG from U.S. suppliers.

Setting their sights beyond the domestic market, state-run Sinopec Corp , Sinochem Group, privately-controlled ENN Natural Gas Co (600803.SS) and China Gas (0384.HK) are building up trading teams from Beijing, Singapore to London.

China’s push into the international LNG market comes two decades after it made a similar big splash in oil trading, and will put its firms in competition with established players like Shell(SHEL.L), TotalEnergies (TTEF.PA) and Vitol.

Fortunately, the pie is growing. By 2027, analysts forecast spot trade in LNG will be $20 billion, more than double its 2020 value.

Last year, China’s imports soared by 18% to a record 79 million tonnes, overtaking Japan as the world’s largest LNG buyer. China’s economic recovery from the COVID-19 pandemic was one factor, but the other was a pipeline reform that allowed more firms to become importers.

Felix Booth, Head of LNG at Vortexa, drew parallels with the way in which Japan’s largest LNG importer, JERA, evolved from “a large end-user to a powerful integrated portfolio player” over the past decade.

“I foresee the Chinese national oil companies achieving a similar transition at an accelerated pace, enabled by a favourable market for long term supply of flexible cargoes and growth of Chinese natural gas demand,” Booth said.

The size of the contracts signed with U.S. suppliers should leave Chinese traders with ample amounts of LNG to trade on the global market, after meeting domestic demand, said one Beijing-based trader.

Late last year, Chinese firms signed up over 10 million tonnes a year of LNG with U.S. exporter Cheniere Energy (LNG.A) and Venture Global, with supplies extending through the mid-2040s’ and provisions for flexibility in marketing destinations for the bulk of the purchases.

Unipec, a trading arm of Sinopec that already rivals Vitol as the world’s top oil trader, is beefing up its LNG desks outside China, having moved two Beijing-based staff to London and added a third trader to its Singapore team late last year.

“LNG now makes up less than a tenth in Unipec’s turnover, but it will be where the growth comes from in the future,” said a company executive, who declined to be named as he was not authorized to speak to media.

Signalling the impact of Unipec’s growing presence in the market, the firm’s largest-ever sell tender last month led in part to a 36% fall in Asian spot prices this year – though it has so far awarded a much smaller volume than the more than 40 LNG cargoes for 2022 delivery that it originally sought.

Chinese state energy major CNPC’s new pipeline gas deal with Russia is also expected to boost LNG sales in the spot market in coming years

“By having multiple pipelines from Russia, Central Asia, along with their still growing domestic production, expanding LNG portfolio, and increasing storage capacity they (Chinese firms) will certainly have the ability to divert greater numbers of cargoes into the spot and short-term markets,” said Tamir Druz, managing director at Capra Energy.

Chinaoil, the trading unit of state energy giant PetroChina and by far the largest Chinese LNG merchant, last year traded over 15 million tonnes outside China, emerging as a rival to trading houses Vitol and Trafigura, said traders.

ENN, China’s first private city-gas distributor operating a large receiving terminal for LNG, is another rising trader and has boosted its trading team accordingly, having become the first Chinese company to sign a major supply deal with a U.S. firm since 2018.

Analysts, however, said that Chinese companies’ long-term success hinges on whether they can better manage price risks, build shipping capability, and own a terminal asset in Europe.

U.S. Is Exporting Every Molecule of LNG Possible

By Sergio Chapa Bloomberg

February 12, 2022, 12:26 PM PST

  • Tankers are docked at all seven U.S. LNG export terminals
  • Loadings taking place amid high gas prices, tensions in Europe

Tankers were docked or loading at all seven U.S. liquefied natural gas export terminals for the first time Saturday, marking a small piece of industry history and setting up record flows to the plants amid high prices and tensions in Europe. 

The Greek-flagged tanker Yiannis is docked at Venture Global LNG’s Calcasieu Pass plant in Louisiana, which remains under construction but has been given permission by the Federal Energy Regulatory Commission to send out cargoes during the export terminal’s startup process. The Saturday afternoon arrival of LNGships Manhattan at Kinder Morgan’s Elba Island LNG plant in Georgia, marked loadings at the other six U.S. LNG export terminals.

Although the tankers are expected to be docked at the same time for less than a day, demand from their loadings helped set a record 13.3 billion cubic feet of natural gas flows to U.S. LNG export terminals on Saturday. 

Once Calcasieu Pass LNG is in full service, the seven U.S. LNG export terminals will be able to draw as much as 13.9 billion cubic feet of natural gas per day, solidifying America’s lead over Qatar and Australia as the world’s top supplier of the superchilled power plant fuel, figures from U.S. Energy Information Administration show. 

Out of the roughly five dozen U.S. LNG cargoes on the water, more than two-thirds are headed to Europe where low winter inventories and tensions between Russia and Ukraine have sent natural gas prices on the continent soaring to more six times the U.S. benchmark Henry Hub. 

STH

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