After an executive from U.S. liquefied natural gas exporter Cheniere Energy Inc. spoke to a few hundred people at a conference in Beijing last week, the first question from the audience turned out to be an invitation to visit one of China’s biggest energy firms and a main LNG buyer, the state-owned giant known as Sinopec.
“We are very happy to always come to your office, Mr. Chen Bo, and discuss the supply of U.S. LNG to China,” Andrew Walker said in front of an amused audience, responding to the chief of Sinopec’s trading arm.
The exchange highlighted a budding relationship between U.S. gas sellers and Chinese buyers after an agreement struck this month by the Trump administration and President Xi Jinping’s government welcomed the Asian country’s investments and purchases of American gas.
“The trade deal paves the way for Chinese support into U.S. LNG in both existing and potential future projects,” said Kerry Anne Shanks, a Singapore-based analyst at Wood Mackenzie Ltd. That includes immediate LNG sales or signing long-term contracts to underpin financing of new plants.
Gas is poised to play a larger role in U.S.-China trade relations as the Trump administration works to trim a trade deficit and as the world’s largest energy consumer seeks to boost the share of natural gas in its energy mix and lower prices that last year were the world’s highest.
While the trade deal announced May 11 doesn’t appear to alter access for Chinese companies to U.S. gas cargoes, it welcomes China to receive shipments and engage in long-term contracts. That may be able to ease concerns in China that involvement in the U.S. LNG industry would be met with wariness.
“There’s never been anything formally that said there are restrictions on Chinese buyers,” Shanks said. “But there’s always been that fear.”
U.S. supplies accounted for almost 7 percent of China’s LNG imports in March, customs data show. But these cargoes were supplied to end-users through intermediaries or spot deals since China currently has no long-term contracts to directly buy American gas.
Longer supply contracts, which can run more than 20 years, traditionally help underpin the financing of export projects by providing lenders with confidence the developments will have stable customers. They also strengthen the relationship between the buyer and the plant operator or gas producer, opening the door to investing directly in the export plants.
China National Petroleum Corp. Chairman Wang Yilin said earlier this month that the country’s biggest oil and gas company wants to import more U.S. supplies and will consider participating in projects. Sinopec’s trading unit, Unipec, is considering the U.S., among other producers, for possible long-term LNG contracts for supply starting around 2022, Chen said Wednesday at the CWC China LNG & Gas International Summit & Exhibition.
China International United Petroleum & Chemicals Co., as Unipec is officially known, may use the cargoes for both domestic demand as well as for its trading book. The company resold about 20 percent of its 10 million tons of annual supply last year to Europe, the Middle East and Mexico, Chen said.
ENN Energy Holdings Ltd., one of the country’s biggest gas distributors and a budding LNG importer, is considering U.S. supplies if it offers acceptable price and flexibility, Vice President Ma Shenyuan said at the same event in Beijing.
“U.S. gas will be the cheapest of all because they have abundant supply” and the Trump-Xi trade agreement is encouraging LNG shipments between the two countries, Zhu Xingshan, a senior director in the planning department of CNPC, said in Beijing last week. “Thus we should increase imports of U.S. LNG.”
Most of China’s long-term LNG supply contracts price shipments as a ratio to oil, with one Qatari deal struck in 2008 pricing it at as much as 16.3 percent the cost of crude, according to data compiled by Bloomberg New Energy Finance. U.S. LNG exports are priced off benchmark Henry Hub gas in Louisiana.
But with oil prices currently depressed, U.S. LNG imports have no cost advantage, said Ye Yishu, president of China National Offshore Oil Corp.’s gas and power trading arm. American gas may present a buying opportunity if crude rises above $70 a barrel, he said at the summit.
Options for China to secure U.S. LNG may include buying spare volumes from Cheniere’s Sabine Pass export terminal in Louisiana, which is currently the only U.S. exporter outside Alaska, financing an expansion of that project, or buying into one of a handful of new developments that have permission to export but still need financing, according to Wood Mackenzie’s Shanks.
China oil explorers aren’t the only ones being lured by cheap plentiful reserves and the possibility of greater sales from North America. Qatar Petroleum International Ltd. has teamed up with Exxon Mobil Corp. to build a $10 billion natural gas export plant in Texas, which won approval by federal energy regulators in December.
“We get asked a lot ‘Is there an unwritten rule that Chinese buyers can’t buy from the U.S.?’ and this clearly laid out the words ‘We welcome Chinese purchases,”’ Cheniere’s Walker said of the recent trade deal. “We very much look forward to continuing our conversations with our various potential customers.”