Trump-Xi Deal Could Fuel A U.S. LNG Boom

Tyler Durden's picture

Authored by Irina Slav via OilPrice.com,

When President Trump came into office, he openly resented the major trade deficit with Asia’s number-two economy and vowed to remedy the situation. While his words smacked of economic protectionism to many, the latest news about China-U.S. economic relations reveal a different picture.

While back in February the U.S. president talked about trade wars, last week he and Xi Jinping struck a deal that would see China receive more U.S. natural gas, as well as additional beef and poultry.

This week, the chairman of the China National Petroleum Corp., the largest state energy company, told Bloomberg in an interview that CNPC would gladly boost its U.S. oil and LNG imports.The U.S. has very rich oil and gas resources, and as China pursues a diversification of its crude supply the U.S. will of course be one of the sources. We will consider exploring cooperation in areas such as jointly developing liquefied natural gas facilities and gas transport,” Wang Yilin said.

China can certainly do with the diversification, as its energy needs are growing inexorably. It is already the biggest buyer of U.S. crude, ahead of Canada, importing a total of 8.08 million barrels of oil in February. China imports this much oil on a daily basis, so in the scheme of things, US oil imports are a relatively small portion of the overall, based on China’s average daily import rate for the same month, but this figure will certainly grow with Beijing’s diversification drive.

The news is even better for U.S. gas. When the Trump-Xi deal was announced, shares in Cheniere Energy, currently the only LNG exporter in the country, jumped by 3.3 percent. The trade deal will likely provide a major boost for other LNG export hopefuls, too. However, not all will be easy.

First, China’s diversification is not necessarily focused only on the U.S. On the contrary, Beijing is unlikely to succumb to overreliance on one single source of energy. What’s more, U.S. LNG may find it tough to compete with supply from Australia and Qatar. All that without even mentioning the Power of Siberia gas pipeline that will see China import 38 billion cu m of gas annually, starting in 2025, strengthening ties between Beijing and Moscow.

In a recent report, the CNBC quoted analysts as suggesting the competition may prove too stiff. “China is much nearer and much cheaper to ship from Australia, for example, or Qatar,” said S&P Platts’ regional director for energy pricing, Alan Banniser. According to him, Europe is the most logical market for U.S. gas.

Wood Mackenzie’s Massimo Di-Odoardo, for his part, told the CNBC that the trade deal put the U.S. in a position to benefit from gas import growth to the tune of US$26 billion annually but he, too, was cautious, adding that this “will depend on its competitiveness versus other global alternatives and Chinese buyer appetite for exposure to U.S. gas prices.”

The average price per thousand cu ft of U.S. LNG in February was US$5.99, up from a trough of US$3.65 per 1,000 cu ft reached in October 2016 but much lower than the US$16.67 from November 2015. Prices fell sharply between November 2015 and February 2016 as a lot of new supply came online and a glut ensued.

The glut is still here, and there is no gas-related OPEC to try and do anything about it, so prices are bound to stay low for a while longer. For how long, it is difficult to say. The good news is that demand for LNG will grow – according to Shell’s first ever LNG Outlook, by 4-5 percent annually until 2030. Capturing a piece of the Chinese market may be a challenge but the rewards to be reaped sure look like it’s worth it.

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HRClinton's picture

Bad news for Russia's Gazprom. 

Nyet horosho. Not good. 

HRClinton's picture

P.s. each ship has the explosive power of a nuke. 

Bill of Rights's picture

Good drive one through the House and Senate chambers.

MalteseFalcon's picture

Natural gas liquified and transported by ship can never compete economically with gas thru a pipeline.

This would have to be a political agreement.

So nothing permanent here.

Shemp 4 Victory's picture

Total bullshit article.

The thing that every pie-in-the-sky LNG huckster seems to forget is arithmetic, especially when it involves LNG carrier ships.

The earliest LNG carriers had a capacity of around 27,000 cubic meters. Later ones were built with capacities ranging from around 75,000 to 140,000 cubic meters. The very newest designs have capacities between 210,000 and 266,000 cubic meters.

As of 2016, the global fleet of deep sea LNG carriers was 451 ships, and as of January 2017 there were 122 new builds on order. LNG carrier ships cost about 200 million US dollars each.

As a hypothetical scenario, let's assume that all LNG carriers in service are the new models with a capacity of 266,000 cubic meters. Now let's look at some examples of natural gas consumption figures.

Latvia, based on 2007 estimates, consumed 2,040,000,000 cubic meters of NG. To replace this entirely would require over 7600 high capacity LNG carriers. The cost of this fleet would be over 1.5 trillion US dollars.

China, based on 2015 figures, consumed 177,300,000,000 cubic meters of NG. To replace just 10% of this with LNG would require 66,655 high capacity LNG carriers. Such a fleet would cost over 13.3 trillion US dollars.

Does anyone at oilprice.com know how to operate a calculator?

https://en.wikipedia.org/wiki/Liquefied_natural_gas#Transportation

https://en.wikipedia.org/wiki/LNG_carrier

https://en.wikipedia.org/wiki/List_of_countries_by_natural_gas_consumption

SeuMadruga's picture

They got it completely wrong: that's all about steel exports, which are now being transported in the form of cargo ships powered by LNG !  ;-)

giovanni_f's picture

i.a.w., LNG is good for the LNG industry

pacrim888's picture

U assume each ship can do only one rotation per year. That may be a little off.

Shemp 4 Victory's picture

Agreed, and thanks for pointing that out.

Divide the numbers by 25 and they're still huge.

ds's picture

Yes the economics is not there. It is a Xi's gesture. His legacies are more important than even the Chinese People. He needs a more stable global economy to climb out of a Ponzi virus and will not show Trump the middle finger. He know that he is not dealing with Obama. It is already a breeze to destabilize China among other things to provoke until N Korea (border state with China) to overspill and having the excuse to be in South China Sea (the declared red line of China). Only the divided tribes in US thinks that Trump is a Joke. Nobody else wants to call his bluffs. 

p.s. There is pressure from Chinese Hawks on Xi and it all over the news in China but in Mandarin. There are less fake news in China than US. Who are filtering these news for the Western Public ? 

sinbad2's picture

The US attack on Syria is so the US can build a pipe to Europe, from Qatar.

You don't think they pay ISIS for fun do you?

PS, the gas they sell is from a mostly Iranian field.

slightlyskeptical's picture

Bad news for all Americans except thoe who have stakes in gas.  Tighter supply means higher prices for everyone.  Just about everything Trump has done hurts most Americans. 

THIS IS HOW WE MAKE AMERICA GREAT AGAIN? GIMMEE A FRICKING BREAK! 

Teamtc321's picture

Your view is completely un-educated or your just spewing liberal rag language. Producing a product to export such as LNG will drive cash flow back into a much needed starving economy.

Do some unbiased research and not from Huff PO....

Omen IV's picture

US Gas Cost plus transportation - Compression Cost - to ship  - transport 6000 miles plus +++ and then decompress

is not viable with the gas lines coming south from east or west Russia or  Vladavostock

 

plus US is not a reliable supplier at any point in time they can call sanctions for any nonsense

 

stupid move for the chinese

Teamtc321's picture

You bring up a valuable point, but doesn't that point swing both ways if your dependent on Russia only? I see this move as brilliant by China's leadership, set multiple sources up for their energy needs.....

To deepen the argument or conversation, if China does not want to get boxed into a trade issue, why wouldn't they give some on energy consumption while working to become more independent on their own?

Go a step deeper, won't those vessels have to be protected inbound? Does China have disputed man made "military" islands they want to preserve?

I say good move by both sides and and benefit to both parties involved.

HoyeruNew's picture

oh please. That's just the latest desparate move by USA trying to annoy Russia. You mean to tell me the US's LNG will be cheaper than Russian's? No way no how. The main problem here is China, who are trying to play both sides but they might end up outsmarting themselves. If Russia falls, China will be next. They better wise up.

giovanni_f's picture

don't worry. it costs the chinese exactly nothing to promise to the yanks to buy some of their gas. and the russians and the chinese know it and both know it that they know it.

Cordeezy's picture

I am sure the democrats will kill this too, this could be huge with the belt and road initiative

www.escapeamazon.com

oromae's picture

Will drive up marginal costs for heavy industry. Tossing aside an advantage in energy costs so gas can increase profits will add another reason to offshore production to China.

Sonny Brakes's picture

The cost of building and maintaining the infrastructure would equal the revenue that the venture would generate. Fuel never seems to be found where the people who need it actually live.

Davidduke2000's picture

The Chinese leader is laughing at the us since he has Natural Gas directly through a pipeline from Russia at a ridiculous price predetermined for 15 years, he would not pay a single penny more to buy from the us who must build ships then pay for the fuel to sail them to China. 

Just noticed the writer is irina slav a unkrainian. 

desertboy's picture

True dat.  

What's more, US does not even have the LNG storage infrastructure in place.  OTHERWISE we would be shipping to freakin Europe.

"jointly developing liquefied natural gas facilities"  means building (owning) the LNG storage facilities in the US.  Sound familiar?

PitBullsRule's picture

We have a finite amount of perfect energy in the ground, once its gone you're fucked.  You think its a good idea to trade it to the Chinks for pieces of paper, that WE PRINT.  Dumb shits, I bet you voted for trump.

desertboy's picture

Yeah it's a real shame - Hillary would have never opted for short-term gains to boost her approval ratings! Have another beer - it wont make you any dumber.

sinbad2's picture

Buying US gas is like giving ammunition to someone who is trying to shoot you.

China can buy all the gas it needs from friendly nations, at a lower price.

whatamaroon's picture

The Europeans, Gazprom, Qutari, etc have always priced their Nat Gas by the BTU equivelent as compared to crude. Thats why there have been many disputes with Gazprom and their price for Nat gas. The US on the other hand prices their Gas at Henry Hub. Prices which has to do with supply and demand. With the US and their overabundence of Nat gas they price it much cheaper than worldwide irreguardless of the BTU content compared to crude.

SmittyinLA's picture

The entire global economy is running at 1/4 speed and that's not including closed plants and parked equipment, gas consumption could potentially double overnight just by throwing environmentalists out of power, particularly in the west.

We've had boots on our necks for at least 8 years, consumption has been artificially restrained by leftists with their carbon taxes.

vietnamvet's picture

LNG terminals and more pipelines will never be built in Oregon, so get used to that boot on your red neck.

LA_Goldbug's picture

Look at on the World map at the location of these countries,

http://www.theglobaleducationproject.org/earth/images/final-images/o-pro...

LNG is insane. Period.

Jethro Dull's picture

International spot versus long term contract to help our domestic producers? Is this what we need to keep some frack wells open given low prices, and, inability of frackers to keep rig count up even in a Zirp financing environment --- as in Chesapeake? Someone clue me in.

Jack Oliver's picture

Russia has been building pipelines for the last 20 years - they are established - US bullshit is just a 'pipe' dream !

Too little and way to FUCKING late !!

A. Boaty's picture

Please do not use "LNG" and "Boom" in the same headline.