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The U.S. have talked up the American energy sector and exports. With natural gas demand surging in China with higher coal prices on high industrial and winter heating consumpton the bet was  China would leave LNG alone in the trade war, they were wrong. What next?



China Natural Gas Demand Sectors

Reading through the list of retaliatory tariffs from China on the U.S. what stands out is LNG. It was expected by most market pundits and in all likelyhood the U.S. Adminstration that China would leave energy alone in the trade war. Some context here, the replacement of coal with natural gas with Chinese clean air reforms is making coal supplies scarce, forcing Chine to buy natural gas and coal elsewhere. Coal is up 140% from the low from the key Newcastle hub. Natural gas consumption in the first 11 months of 2017 alone saw a 18.9% year-on-year rise in natural gas consumption. zsince then it has accelerated.

Chinese gas consumption totaled 209.7 billion cubic meters in the January-November period of 2017, according to the National Development and Reform Commission (NDRC). This growth was 12% higher than that in the first half of the year. At years end  demand was travelling more than 8% higher than the average growth in the previous five years, NDRC spokesperson Meng Wei said at a press conference. Since then we have had unseasonly hot weather. China needs LNG and coal that is clear. What this shows is two things China is not playing the cards the U.S. expected and secondly is playing the long game.

The latest trade report form the US showed the trade deficit with China growing and the latest EIA reports show that US crude oil exports have fallen off record highs over the past month. The United States is the world’s largest exporter of products such as gasoline and diesel. It has also been looking to become the third largest exporter of LNG by 2019, behind Australia and Qatar. U.S. exported $3.3 billion of LNG in 2017.

Chinese imports of U.S. LNG had been falling ahead of this announcement, perhaps in preparation. China bought nearly 14 percent of all U.S. LNG shipped between February 2016 and May 2018, has taken delivery from just one vessel that left the United States in June and none so far in July, compared with 17 in the first five months of the year.

China is the significant energy importer for exporters, China is the world’s biggest crude oil importer.  Just a few months ago the U.S. threatened countries that import Iranian crude. China as the largest importer of crude oil from China and said they would not comply. This move on LNG indicated their views further.

China has also become the second largest buyer of U.S. crude oil after Canada, like with LNG China imports of American crude have also dropped off in recent months. This is not an insignificant development, the United States has several large scale LNG export facilities under construction. President Trump’s trip to China at thend of last year also included executives from U.S. LNG companies as China rose to be  world’s second-biggest LNG importer in 2017. It is a bit hard to become a dominant energy exporter when the main buyer is handicapping you.

LNG World Suppliers

“This will not affect the trade but will simply make gas more expensive to Chinese consumers,” said Charif Souki, chairman of Tellurian Inc (TELL.O.). Tellurian is seeking to build a new LNG export terminal. 

Energy data watcher Kpler estimated crude exports to China dropped to an estimated 226,000 barrels per day (bpd) in July, after reaching a record 445,000 bpd in March. Sinopec, through its Unipec trading arm, is the largest buyer of U.S. crude Reuters reports.

Tellurian Inc China would likely hike purchases from Saudi Arabia, Russia, the United Arab Emirates and Iraq if the tariffs slowed U.S. flows, said Neil Atkinson, head of the oil industry and markets division at the International Energy Agency.

There are around 24 seeking to build new LNG export terminals in the United States and tariffs may limit their ability to secure sufficient buyers to finance their proposed projects.  Cheniere ($LNG) owns one of the two LNG export terminals currently operating in the United States.

“Cheniere continues to see China as an important growth market and LNG as a ‘win-win’ between the United States and China,” said Eben Burnham-Snyder, a spokesman at Cheniere Energy Inc .  

China Natural Gas Consumption Surges As Coal Replaced

Imported Natural Gas is Meeting Extra Demand

During the first 11 months of 2017,

  • Domestic natural gas output rose 10.5 % year on year to 133.8 billion cubic meters
  • Imported natural gas rose 28.9 % year on year

Meng said millions of households changed to gas instead of coal for heating this winter to help combat air pollution. To better meet household demand, gas supply for industrial use will be reduced moderately, said Meng.

The U.S. Energy Information (EIA) said back in that administration Global natural gas consumption is expected to grow from 340 billion cubic feet per day (Bcf/d) in 2015 to 485 Bcf/d by 2040, primarily in countries in Asia and in the Middle East, based on projections in EIA’s latest International Energy Outlook 2017 (IEO2017). China accounts for more than a quarter of all global natural gas consumption growth between 2015 and 2040.

Global Natural Gas Consumption

China's major state-owned oil firms have been told to maximize production at domestic gas fields.

China Natural Gas Supply

Xu Bo, a senior analyst with China National Petroleum Corporation's Economics and Technology Research Institute, estimated that natural gas use is expected to reach 230 billion cubic meters this year, with 20 billion cubic meters coming from the coal-to-gas transition.

Xu projected a growth rate of 17 percent for natural gas consumption this year, compared with 7 percent last year.

There are around 24 seeking to build new LNG export terminals in the United States and tariffs may limit their ability to secure sufficient buyers to finance their proposed projects.  Cheniere ($LNG) owns one of the two LNG export terminals currently operating in the United States.

“Cheniere continues to see China as an important growth market and LNG as a ‘win-win’ between the United States and China,” said Eben Burnham-Snyder, a spokesman at Cheniere Energy Inc .  

The investments are huge, for example the $43 billion Alaska Gasline Development Corp (AGDC) project being developed, which would carry natural gas through an 800-mile pipeline across the state to a terminal that would convert it to LNG to export it to China. The project is still in development, and the AGDC said on Friday tt believes the “current trade tensions between the United States and China will be resolved well in advance of Alaska LNG exports to China.” 

That appears to be the assumption of allt he American side, China's action tell you don't assume anything in a trade war.

Source: Reuters Xinhua, EIA

From The TradersCommunity Research Desk

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