The first shipment by Cheniere Energy from its new Corpus Christi LNG terminal in Texas this week marks a new wave of production out of North America – and the United States in particular.
However, it is happening at a time when relations with the main LNG market, China, have slumped to the lowest level in a decade or more. And that is despite President Trump and President Xi calling a truce in their trade war.
Meantime, shipments have been continuing steadily out of the United States. Maria Energy, with a capacity of 174,000 m3, left Cheniere’s terminal with a full load, the first LNG to be shipped out of a Texas-based facility, according to the company.
“Exporting the first commissioning cargo of LNG from Texas demonstrates Cheniere’s ability to deliver projects safely and ahead of schedule, including the first LNG export facility in the Lower 48 states,” said chief executive Jack Fusco before Maria Energy sailed out.
Cheniere will not bring its Texas plant fully on line until early 2019 after it has run another half-dozen test cargoes through the liquefaction train. A second train is scheduled to come online later in 2019, with a third due for start-up in 2021. With each train capable of churning out 690M cubic feet (cfd) a day, plus the two additional trains Cheniere plans to add to its Sabine Pass facility in West Louisiana, the United States’ export capacity will go up by another level.
At an output of 8.9Bn cfd by the end of 2019, up from a predicted 4.9Bn cfd in 2018, the United State’s export capacity will be the third-largest in the world, behind only Australia and Qatar. According to most analysts, the rapid increase in the country’s LNG exports is a major factor in the current spate of orders for LNG carriers that will mainly shuttle between the US and Asia – and particularly China.
The Freeport LNG facility is also expected to open next year near Houston. Originally intended as a regasification terminal – the first to be built in America in 20 years, Freeport LNG will produce and export more than 20M tonnes a year by the time its four trains are up and running.
And with further LNG production capacity added around the United States, volumes are set to rise substantially. According to energy consultant Wood Mackenzie, no less than US$20Bn could be invested in just three projects alone on the Gulf Coast in the next four years.
The big question is: following an exceptional year for LNG exports from North America and the United States in 2018, will it all be sold in 2019 and beyond?
Before the tariff war flared up and China applied 10% on imports of America’s LNG in September, China was the American industry’s second largest buyer, accounting for about 3M tonnes a year. Although the original rate proposed was 25%, a 10% tariff has still slowed sales, affecting a US$60Bn a year export industry.
As Wood Mackenzie pointed out, since imposing the tariff Chinese buyers have steadily reduced purchases of American LNG. The energy consultant’s prediction is that China will turn to alternative suppliers to procure spot cargoes during the winter, if the country needs them. The likely winners will be LNG plants on Australia’s east coast, Indonesia’s Tangguh, Western Australia’s Gorgon field, and Qatar’s mega-trains.
Besides China, there are however other LNG-hungry markets in the Asia region, notably Japan, on which American producers could fall back if the Chinese market dries up. As observers point out, the first wave of America’s LNG projects was able to find offshore markets outside China.
Looking forward though, the American industry needs China which will next year become the world’s biggest LNG market, according to the International Energy Agency. Forecasters predict that America’s LNG should account for 18% of the global market by 2022 while the imminent second wave of production is forecast to push that to 22% by 2030 – and it all has to find a home.
“Forecasts of Chinese demand for gas underpin a raft of proposed LNG export terminals along America’s east coast,” pointed out Verisk Maplecroft’s senior analyst for Asia, Hugo Brennan, earlier this year just as the tariff war was escalating. “[These terminals] align with the Trump administration’s bid to turn the US into an energy superpower. But some of these projects will struggle to attract financing if [China] goes ahead and raises tariff barriers on US LNG.”
That is why America’s LNG industry is hoping for a thaw in relations between Washington and Beijing during 2019.
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