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US-China Trade War for US LNG Projects - Wood Mackenzie

Gasoil News - Published on Fri, 16 Aug 2019

Image Source: SteelGuru
In the short-term, Wood Mackenzie expects the US-China trade war to have a fairly limited impact on US LNG projects and LNG flows to Asia Pacific. LNG market fundamentals have softened significantly over recent months and tariffs are unlikely to outweigh this to cause an increase in LNG prices. US LNG is already a very marginal supplier to China. Only four US cargoes have been delivered to China since the tariffs came into effect in September 2018. This is because onstream US producers already have long-term contracts in place with non-Chinese buyers. Moreover shipping economics currently favour delivery of US LNG into Europe rather than into the Pacific Basin.

Instead, China has seen an uptick in Australian volumes since the start of 2019 – as contracts ramp up and also due in part to supply optimisation by portfolio suppliers. The upside for other suppliers with spot volume to sell will, therefore, be modest.

“For US developers, although the risk to Chinese investment and restricted access to Chinese buyers is a blow, it is not fatal.”

The trade spat, however, could have ramifications on the longer term market, with consequences likely to be felt by new supply developments. For Chinese companies, the current political dynamic creates additional risk and uncertainty around new US LNG projects. As a result, Chinese companies may be hesitant to sign up for new long-term volumes. And for those US projects still looking for financing, Chinese companies may be reluctant to invest. This will likely encourage Chinese support for other projects outside the US such as Australia, Mozambique, Russia and Papua New Guinea. And we’ve seen some examples of this shift already in 2019 with CNOOC signing a 13-year offtake agreement from Anadarko’s Mozambique LNG (Area 1), and the entry of CNOOC and CNPC into Russia’s Arctic LNG 2 project.

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Posted By : Sanju Moirangthem on Fri, 16 Aug 2019
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