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Permalink Reply by Skip Peel - Mineral Consultant on September 10, 2018 at 9:21

The next wave of LNG export facilities are in FID (Final Investment Decision) period now into early 2019.  There appears to be some hesitation as to costs (import tariffs on steel and aluminum) and the outcome of the trade war with China.  So far China has not placed tariffs on U.S. LNG.  We should all hope that doesn't change.

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Permalink Reply by David on September 10, 2018 at 10:03

I do not think most people understand the possible impact that LNG exports can have on firming and stabilizing prices. The ability of the US to produce vast amounts of NG and then convert it to LNG and export it is a potential game changer for our balance of trade. May not impact the RO as much, but it does provide a potential floor, as it were.

I don't think China can afford to put tariffs on LNG, as they really need the NG. Time will tell, Skip.

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Permalink Reply by Skip Peel - Mineral Consultant on September 10, 2018 at 10:16

China has the option of sourcing LNG from Australia and the Middle East.  Both have sufficient capacity to meet China's current needs.  U. S. LNG is more likely headed to South American, the Caribbean, Europe and hopefully Japan and South Korea depending on which LNG facilities get built.  China has options for whom they get their LNG from while the U.S. does not have the volume and specific type of tubular steel and aluminum products required by the O&G, chemical and refining industries.  It will get sorted out eventually and LNG export will be an important export for American companies regardless of where it goes.  Of course, that's easy for us to say, we are not the upper management at those companies trying to make a FID on a short time line with rising costs of their most basic material.  If things take a year or more to eventually work themselves out, they are screwed.

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Permalink Reply by Skip Peel - Mineral Consultant on September 11, 2018 at 12:51

Emphasis added is my own.

The Qatar-China LNG Deal Is A Game Changer

By Tim Daiss - Sep 11, 2018  oilprice.com/Energy

PetroChina has just inked a deal to buy 3.4 million tonnes per annum (mtpa) of LNG from QatarGas in a move representing the Chinese firm’s largest ever to date LNG supply deal by volume.

Per terms of the new 20-year agreement, state-controlled QatarGas has agreed to supply PetroChina from the QatarGas 2 project, a joint venture between Qatar Petroleum, U.S.-based oil major Exxon Mobil and French major Total SA. The first cargo will be delivered later this month.

The deal has several market and geopolitical take-aways. First, it comes as President Donald Trump ramps up the ongoing trade war between the U.S. and China. On Friday, Trump said he was ready to levy additional taxes on practically all Chinese imports, threatening duties on $267 billion of goods over and above planned tariffs on $200 billion of Chinese products.

On cue, China’s foreign ministry on Monday vowed (once again) to defend itself over any possible new tariffs on its products going into the U.S.

"If the U.S. side obstinately clings to its course and takes any new tariff measures against China, then the Chinese side will inevitably take countermeasures to resolutely protect our legitimate rights," Foreign Ministry spokesman Geng Shuang told a regular briefing, when asked about Trump's warning.

China has already threatened a 25 percent tariff on American LNG imports that have the potential to dramatically set back the so-called second wave of the U.S. LNG sector. Most new American LNG project proposals have been counting on not only Chinese funding for their CAPEX intensive LNG projects, but for Chinese firms to sign much needed long term off-take agreements that help projects reach a final investment decision (FID) that must be in place before projects can be built.

Opportunity cost

Moreover, the new deal between PetroChina and QatarGas could also arguably be called an opportunity cost/loss for U.S.-based LNG projects already operational that need to sign new agreements to finance additional production trains. Not only is it a potential loss for American projects but these volumes can also help PetroChina offset the reduction and possible elimination of buying U.S. LNG cargoes on the spot market in Asia. If Beijing pushes through with its retaliatory LNG threat, those duties would push up the price of U.S. LNG above what companies could afford to pay for them in the near term.

"[A] 25 percent [tariff] is not something we can absorb even if domestic demand is strong," said a source at a state-owned Chinese company in August. "So while this uncertainty persists, I doubt buyers will be buying a lot of spot US LNG."

The PetroChina deal also comes as China continues to revolutionize global LNG markets as it looks to replace dirtier burning thermal coal power production plants with cleaner burning natural gas. Both LNG and piped gas imports to China have escalated within the past year with that trajectory projected to continue its ascent. 

Insatiable appetite for gas

China’s August gas imports (both LNG and pipeline gas) spiked some 37 percent year-on-year, while gas imports in August were up 5.4 over the previous month. In the first eight months of 2018, China has imported 57.18 million mt of gas, up 34.8 percent compared with the same period of 2017.

However, August’s figures are merely a flash in the pan compared to the International Energy Agency’s (IEA) projections. In December, the Paris-based agency said that China's demand for natural gas will continue to soar toward 2040, outstripping domestic output by around 43 percent.

"China's annual gas production will more than double to 340 billion cubic meters in 2040, with shale gas a major contributor, but consumption is foreseen to grow even faster, reaching 600 billion cubic meters," said the China Special Report of the World Energy Outlook 2017.

Qatar fights back

Another take-away from the recent PetroChina-QatarGas deal is that it supports Qatar’s determination to remain at the top of global LNG production and dominance.

Sometime next year Australia is slated to bypass the tiny-gas rich kingdom as the world’s largest LNG producer in terms of liquefaction capacity. However, mid-last year Qatar fought back by announcing its plan to ramp up LNG capacity from a current 77 mtpa to a market shocking 100 mpta within five or six years, effectively positioning itself to become the world’s top LNG producer again around 2023, a pivotal date that could mark the end of the ongoing supply overhang and ushering in a once unthinkable shortage of the super-cooled fuel in global markets.

Until China’s 25 percent retaliation threat on LNG, the U.S. was also in a good position to challenge Qatar’s dominance for not only the number two slot it will inherit next year but even as the new global leader when Qatar’s 100 mpta production kicks in. However, Beijing’s LNG threats could derail U.S. plans to take the top LNG production slot - creating an intriguing causal effect between global LNG producers, consumers and warring trading partners.

 

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