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Chinese firms eye US LNG, shale gas, petchems

9 Nov 2017, 8.25 pm GMT

Chinese firms eye US LNG, shale gas, petchems

Houston, 9 November (Argus) — US President Donald Trump's visit to China has produced three nonbinding deals for Chinese companies to buy US LNG, as well as an agreement for another to invest up to $84bn in West Virginia shale gas and petrochemical projects.

China could pave the way for construction of additional US LNG projects by finalizing a long-term deal for US supply or liquefaction capacity. China is expected to be one of the fastest-growing LNG markets in the foreseeable future but it has not yet signed any binding deals for US LNG.

Cheniere Energy told Argus today that it signed a preliminary LNG deal last night with state-owned China National Petroleum Corporation. The company declined to comment on the deal, other than saying it will continue discussions with CNPC "to strengthen cooperation on LNG export projects and the long-term LNG procurement cooperation between China and the US."

Cheniere owns Louisiana's Sabine Pass LNG terminal, which came on line in early 2016, and is building the Corpus Christi LNG terminal in Texas.

Pipeline operator China Gas said it signed a preliminary 15-year deal to buy up to 3mn t/yr, equivalent to about 385mn cf/d (4bn m³/yr) of gas, from the proposed Delfin LNG project in Gulf of Mexico, about 40 miles (64km) offshore Louisiana. Delfin is scheduled to come on line in 2021-22, but it has not finalized any customer deals to it to make an investment decision. The multibillion-dollar project, owned by Asian-US venture Fairwood Peninsula Energy Group, would have baseload capacity of up to 12mn t/yr.

In the third LNG deal, three Chinese entities agreed with the state of Alaska and state-owned Alaska Gasline Development to cooperate in developing the massive Alaska LNG export project and evaluate the joint effort in 2018.

The Chinese consortium includes state-owned China Petrochemical Corporation (Sinopec), which said it could be interested in buying supplies from Alaska LNG. The other Chinese partners are CIC Capital Corporation and Bank of China.

"This is an agreement that will provide Alaska with an economic boom comparable to the development of the Trans-Alaska Pipeline System in the 1970s, "Alaska governor Bill Walker said.

However, many industry observers are skeptical that the 20mn t/yr Alaska LNG project, which would include an 800-mile pipeline, will be built because its estimated cost of $40bn-$45bn could make it uncompetitive.

The West Virginia Department of Commerce also said today that China Energy Investment Corporation plans to invest $83.7bn in shale gas and chemical manufacturing projects in the state over 20 years. China Energy plans to invest $250bn in the US, with the West Virginia investment to be the largest of those, the agency said.

"This is a great day for the state of West Virginia," said West Virginia governor Jim Justice, but the state did not provide details of the proposed investments.

West Virginia holds significant Marcellus and Utica shale gas reserves.

In June, when South Korean President Moon Jae-in met Trump in Washington, DC, south Korea's state-owned Korea Gas announced preliminary deals to potentially buy LNG from three US projects. Those were Alaska LNG, the Port Arthur LNG project in Texas being developed by Sempra Energy and Woodside Petroleum and the Lake Charles LNG project in Louisiana being developed by Energy Transfer and Shell.

Trump earlier this year vowed to usher in a "golden era of American energy" and has pushed to increase US LNG exports to further monetize the country's huge US shale gas assets. The fall in oil prices since mid-2014 has made it difficult for US LNG developers to sign new customers, as the economics of US LNG exports are based on a wide differential between domestic gas prices and global oil prices.

The six LNG export projects currently being built in the US were financed with long-term deals signed while Barack Obama was president, and it is unclear what Trump's administration can do to spur further development. New LNG facilities are expected to be financed in the coming years as an ongoing supply glut recedes, and the US is widely perceived to have advantages over other LNG producing countries because of its liquid market and extensive pipeline network.

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