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Report: Trade deal could make US top LNG supplier to China
POLICY
THE oil and gas industry has been eagerly await- ing news of progress on a trade deal between the US and China. Now, a new report from Morgan Stanley has found that a trade deal could put the US on track to become China’s biggest supplier of LNG.
According to the bank’s base case, a trade deal agreed this year between the two coun- tries – which are the world’s two largest econo- mies – would likely lead to extensive purchases of US LNG by Chinese buyers. Morgan Stanley said this would help shrink the US trade de cit with China by US$17 billion per year. e bank also said an agreement could increase the North American country’s share of China’s gas imports to 21% by 2025, compared with 5% without a deal. e gure was only 2% last year, with Chi- nese purchases of US LNG falling steeply as the trade war between the two countries escalated.
“A higher LNG trade from the US to China would potentially be a win-win deal for both,” Morgan Stanley analysts wrote in the report. According to the bank’s estimates, as well as reducing the trade deficit, a deal could help China save US$1.8 billion per year in energy costs.
e report comes as new export terminals are still starting up in the US – with more planned – putting the country on course to become the world’s biggest LNG exporter in the com- ing years. China, meanwhile, is anticipated to become the top importer globally early in the
next decade. e trend is thought to make the two countries a good t for trading with each other – with the US ideally positioned to meet China’s growing demand. However, without a deal, China would turn to Australia, Russia and Middle Eastern countries for purchases of gas, while US exporters would also have to target other markets.
e dispute is also hurting US LNG export- ers’ ability to go ahead with the construction of new terminals, as they were previously counting on Chinese players to sign o ake agreements or invest in certain projects. Leading US LNG exporter Cheniere Energy struck a 25-year sup- ply agreement with China National Petroleum Corp. (CNPC) earlier this year, raising hopes that Chinese players were still willing to buy US gas. But the move was an exception to the broader trend of Chinese interest in US LNG dropping sharply. In May, anonymous sources familiar with the matter were reported by Reuters as say- ing Sinopec was poised to sign a 20-year LNG supply agreement with Cheniere once the trade war was ended. However, in a further escalation of trade tensions China subsequently increased its tari s on US LNG to 25% from June.
US President Donald Trump is reported to be seeking a meeting with his Chinese counter- part, Xi Jinping, at the upcoming Group of 20 summit in Japan to discuss the issue. However, he has threatened to raise tari s on China again if a meeting does not take place.
AN LNG tanker docked at Sabine Pass LNG, the rst export terminal to start up in the Lower 48 US states.
Without a deal, China would turn to Australia, Russia and Middle Eastern countries for purchases of gas.
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w w w . N E W S B A S E . c o m Week 24 20•June•2019
