U.S. LNG, ethanol sellers buoyed by China trade talks

Source: By Scott DiSavino, Reuters • Posted: Wednesday, May 23, 2018

(Reuters) – China’s interest in reducing its trade surplus with the United States through increased energy imports could advance plans for U.S. liquefied natural gas (LNG) plants and ethanol sales, analysts and energy executives involved in developing new LNG facilities said.

Washington and Beijing stepped back from the brink of a full-blown trade war after talks last week, with the United States appearing to set aside for now its demands that China revamp key planks of its industrial policy.

“China represents an enormous economic opportunity for U.S. LNG and ethanol exports as both products will likely see dramatic demand growth in the coming years, during which time the United States is also expected to dominate global export markets,” Katie Bays, energy analyst at Height Securities in Washington, D.C., said in a note on Tuesday.

Bays estimated that substantial LNG sales commitments could bring in between $20 billion and $30 billion annually and ethanol sales could reach $5 billion to $7 billion annually. She noted, however, that the LNG and ethanol markets are not big enough by themselves to meet President Donald Trump’s goal of reducing the Chinese trade deficit by $200 billion per year.

On Tuesday, Cheniere Energy Inc said its board approved financing for an LNG unit, the first new approval in the United States since 2015. The decision adds a third unit capable of producing 0.7-billion cubic feet per day of liquefied natural gas to its Corpus Christi, Texas, plant.

There are more than two dozen proposed U.S. LNG plants waiting for customer commitments to reach a final investment decision, many of them looking to China for deals.

China overtook South Korea in 2017 as the world’s second biggest buyer of LNG behind Japan. The country, which imported 5.6 billion cubic feet per day last year, is looking to buy more low-cost sources of energy, like gas, to reduce its use of coal and cut pollution.

Charlie Cone, LNG proprietary analyst for energy data provider Genscape, said at least 13 percent of total U.S. LNG cargoes currently go to China. “We expect this number to grow as more U.S. firms sign long-term agreements with Chinese buyers as their nation continues to develop its gas infrastructure,” Cone said.

Bays said a hold on the trade war could drive Chinese customers to sign new LNG contracts with Cheniere Energy’s Sabine Pass or Corpus Christi facilities, Sempra Energy’s Cameron, Freeport LNG, NextDecade Corp’s Rio Grande, or Pembina Pipeline Corp’s Jordan Cove.

“We see it as a positive development,” said William Daughdrill, director of health, safety and environmental matters at Delfin Midstream. The company’s chief executive was in Asia last week pursuing customers, Daughdrill said.

Delfin is proposing a floating LNG facility in the U.S. Gulf of Mexico and aiming for a final investment decision as early as this year to go ahead and produce up to 13 million metric tons per annum (mtpa) of LNG for export.

“For us, it’s strictly been about marketing to China,” said Greg Vesey, chief executive of LNG Ltd, which is developing an LNG plant in Louisiana and another in Nova Scotia in Canada. It hopes to reach a final investment decision on the U.S. project by year-end and begin exports in 2022, he said.

“If you look at some forecasts for 2035, there are really only two places that have significant increases in LNG imports. Europe goes up about 100 mtpa and China goes up about 200 mtpa,” Vesey said.

Texas LNG, which is proposing a 4-mtpa export facility in Brownsville, Texas, and has five early-stage agreements with Chinese customers, hopes to make a final decision next year, about six months behind its original goal.

“Sentiment in the LNG markets is heating up again,” said Langtry Meyer, co-founder of the company. He added, however, that Texas LNG was not considering developing an import terminal in China, which would likely be needed to expand U.S. exports.

As for ethanol, Bays at Height Securities said ethanol producers like Archer Daniels Midland Co and Green Plains Inc could benefit from negotiations with China given the political importance of corn producers to Trump, coupled with China’s need to increase ethanol imports dramatically to meet its 2020 renewable fuel objectives.

Reporting by Scott DiSavino in New York; Writing by Gary McWilliams; Editing by Tom Brown and Leslie Adler