Page 12 - NorthAmOil Week 31

NorthAmOil COMMENTARY NorthAmOil

More liquefaction
capacity is currently
under construction on
the US Gulf Coast.

small-scale liquefaction train into service at the seek to end their trade war. However, a demand
Elba Island LNG export terminal in Georgia. drop resulting from COVID-19 has severely
And last week, federal regulators approved a hampered China’s progress towards a goal that
request to bring the third 5mn tpy train online seemed out of reach from the beginning.
at Cameron LNG in Louisiana. Nonetheless, the Phase 1 deal revived hopes
Two new LNG export facilities are currently that Sinopec would strike a 20-year supply agree-
under construction on the Gulf Coast – the main ment with Cheniere Energy, after the two com-
US LNG hub. Venture Global LNG’s Calcasieu panies had previously been reported to be close
Pass terminal is scheduled for start-up in 2022, to a deal that was derailed by the trade war.
while Qatar Petroleum (QP) and ExxonMobil’s In January, it was reported that the companies
Golden Pass LNG is expected to enter service in were planning to review the terms of a potential
2024. deal after LNG prices fell to new lows in Asia.
These capacity additions will further support Earlier this year, China started granted tar-
the US’ LNG dominance, but only if price differ- iff waivers to buyers of US LNG in a bid to help
entials are favourable enough to justify exports them ramp up imports, and this was also wel-
to Asia and Europe – or elsewhere. comed as progress towards a full resumption of
US-China LNG trade.
Chinese whispers However, a report published this week by the It was reported
Meanwhile, it was reported in late July that Chi- Institute for Energy Economics and Financial
na’s Sinopec was seeking 1mn tpy of LNG for Analysis (IEEFA), a think-tank, has expressed in late July that
delivery over a 10-year period from 2023 in a bid scepticism over the likelihood of China coming China’s Sinopec
to take advantage of the current low prices. Long- to the rescue of US LNG exporters.
term deals have been relatively rare recently, so One of the report’s co-authors, Clark Wil- was seeking 1mn
the fact that buyers are still open to them could liams-Derry, said in a statement that if China is
boost hopes for new liquefaction capacity plans to expand its LNG imports, it would likely seek tpy of LNG for
that are still awaiting final investment decisions to secure long-term supplies at prices well under
(FIDs). However, in an oversupplied market, $7 per million British thermal units ($193.62 delivery over a
the negotiating advantage appears to lie with the per 1,000 cubic metres). But the report’s authors 10-year period.
buyer, and sellers may have to settle for lower concluded that even with US costs close to his-
prices than they would have liked. torically low levels, the margin for reaching such
The report about Sinopec came from Reuters, low prices is slim.
which cited six industry sources. Offers were “The most optimistic LNG demand scenar-
reported to be due by July 31. One of the sources ios are simply unrecognisable to experienced
said Sinopec was also looking for volumes from analysts of the Chinese energy sector,” said
the US as part of the tender requirement. Williams-Derry. “Even if China expands its gas
This comes as China is under pressure to use, the country will likely find cheaper sources
buy more US energy in order to meet its com- of gas than US imports, including domestically
mitment under the Phase 1 agreement reached produced gas, pipeline imports and LNG from
by the two countries earlier this year as they lower-cost global suppliers.”™

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