Trump’s China trip is usually a test for US natural gas exports

President Donald Trump’s entourage on his trip to Asia includes a pair of natural gas executives, a sign of which the White House is usually eager to build on progress earlier This particular year to ship more of the fuel to China.

Natural gas demand in China is usually rising in addition to poised to boom in coming years as the entire world’s second-largest economy aims to reduce its reliance on coal-fired power. The Trump administration is usually producing the item a priority to assure U.S. companies scoop up a significant share of the business.

In May, the U.S. Commerce Department in addition to Beijing reached an agreement of which will allow Chinese firms to strike long-term contracts with American producers of liquefied natural gas.

U.S. capacity to process LNG, or natural gas cooled to liquid form, is usually set to grow nearly seven-fold by 2019 as 5 export terminals open. Exporting more of of which LNG is usually a central pillar of Trump’s plan to achieve “energy dominance.”

The United States will have to compete with Qatar, Malaysia in addition to Australia, which dominate global LNG sales, as well as Russia, which ships gas to China by way of pipeline. however there are signs of which there’s room for American suppliers inside fastest-growing market for LNG.

American LNG shipments to China are rising This particular year, according to a report by the U.S.-China Economic in addition to Security Review Commission. The U.S. shipped $139 million of LNG to China inside first seven months of This particular year. of which tops last year’s total U.S. LNG exports to China of $137 million.

The opportunity exists because U.S. transport costs to Asia are low right at This particular point, in addition to Asian LNG prices have fallen to the weakest level in more than a decade.

of which is usually encouraging China to buy natural gas instead of coal. China’s 5-year economic plan calls for the country to use less coal in addition to more natural gas to generate power.

Despite the recent gains in addition to the agreement with Trump, Chinese buyers are still only purchasing U.S. LNG by third parties in short-term spot trades. in addition to there is usually currently only one company, Cheniere Energy, capable of exporting large shipments of LNG by the United States.

Cheniere CEO Jack Fusco in addition to Texas LNG Chief Operating Officer Langtry Meyer are joining the Trump delegation. The companies did not respond to questions about their agenda in China, however energy research firm Wood Mackenzie said securing commitments is usually likely at the top of Trump’s list.

“The fact of which Trump will arrive in Beijing having a large business delegation in tow, including a sizeable contingent by the energy sector, indicates of which the White House is usually looking to secure concrete commercial agreements by the upcoming trip,” Kerry-Anne Shanks, head of Asia gas in addition to LNG at Wood Mackenzie, said in an email briefing on Tuesday.

Chinese natural gas demand could grow by 206 billion cubic meters last year to 330 billion cubic meters in 2020, according to Wood Mackenzie. The firm expects LNG to account for about a third of China’s growing consumption through 2025.

The United States has faced some obstacles however also boasts advantages in capturing part of of which growth.

On the one hand, Chinese LNG buyers can potentially find a better deal elsewhere in addition to may not want to expose themselves to U.S. gas prices, said Hugo Brennan, Asia analyst at risk consultancy Verisk Maplecroft. There are also large fixed costs to liquefying in addition to shipping LNG by the United States, in addition to American companies will have to contend with lower-cost LNG expansions in Qatar in addition to Australia, Brennan added.

Shortly after the Commerce Department reached the agreement with China, Qatar announced plans to hike its natural gas exports 30 percent by 2024. Some analysts think China won’t end up buying much LNG by the United States in addition to will instead use the option to gain leverage over Qatar in cost negotiations.

however U.S. LNG shippers can offer customers more flexibility in terms of shipment volumes, in addition to American deals have allowed buyers to sell off their purchases to others, Brennan notes.

“China aims to maintain a well-diversified portfolio of gas suppliers in addition to U.S. imports could help ensure of which Beijing does not become too dependent on any one state. U.S. supplies could help reduce China’s reliance on gas imports of which transit strategic chokepoints,” Brennan said in a note on Tuesday.

Wood Mackenzie also flags growing cooperation between China in addition to Russia, which can send natural gas to its southern neighbor through pipelines at a discount to U.S. overseas shipments.

Despite the existence of latent pressure points, Sino-Russian ties have warmed considerably under Xi Jinping in addition to there is usually a deal of synergy between Moscow’s ‘Pivot to Asia’ in addition to Beijing’s ‘Belt in addition to Road Initiative,'” the firm says. “Energy cooperation has developed into the central plank of the bilateral relationship.”

Supply by China itself could also be an obstacle. China has the entire world’s largest technically recoverable reserves of shale gas, according to the U.S. Energy Information Administration. By 2030, China could provide for about a third of its own gas needs, EIA projects.

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