US Natural Gas Exports to China Face Obstacles

China is much nearer and cheaper to ship LNG from Australia or Qatar.China is much nearer and cheaper to ship LNG from Australia or Qatar.

American drillers and natural gas exporters may see limited benefits from the US deal with Beijing to open Chinese markets to US natural gas, analysts say.

The deal, announced by the Commerce Department on Thursday, paves the way for Chinese companies to negotiate long-term contracts to purchase liquefied natural gas from American suppliers. Beijing will allow private and state-controlled companies to import US LNG and encourage them to invest in import infrastructure, a person familiar with negotiations said, CNBC reported.

US Commerce Secretary Wilbur Ross said Friday the deal would help to "liberate American energy."

"China is the world's largest buyer of LNG. Now that market is really going to be open to the American producers," Ross told CNBC.

But in fact, Japan is the largest market for LNG, followed by South Korea and then China, according to the International Gas Union. China is the world's fastest-growing market for LNG, according to energy research firm Wood Mackenzie.

The deal positions the US to capture part of that growth, which would represent $26 billion a year in purchases by 2030 at today's prices, according Massimo Di-Odoardo, head of global gas and LNG research at Wood Mackenzie.

However, he cautioned that US LNG's fortunes in China "will depend on its competitiveness versus other global alternatives and Chinese buyer appetite for exposure to US gas prices."

Alan Bannister, regional director for energy pricing at S&P Global Platts, noted on Friday that shipping LNG to China from the US Gulf Coast — where much of the export capacity is planned or being built — would be inefficient and unlikely.

"China is much nearer and much cheaper to ship from Australia, for example, or Qatar," he said. "What I think we're more likely to see in the real world is that US Gulf Coast LNG will primarily go to Europe."

Any uptick in exports to China would have to wait until the US builds more of the expensive facilities where natural gas is cooled into liquid and loaded onto specialized tankers.

Only one LNG export terminal is operating in the Lower 48 states: Cheniere Energy's Sabine Pass facility in Louisiana. Alaska has also exported LNG, primarily to Japan, for decades.

On Friday, Ross blamed the Obama administration for holding up approvals for more than a dozen LNG export facilities.

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