China Has A Hitch In Their Giddy-Up: They Need Lots More Natural Gas From The U.S.

(THIS ARTICLE IS COURTESY OF ANDY TAI ON GOOGLE PLUS AND FROM FORBES)

 

Energy #Market Moves 

China Will Need More U.S. Natural Gas

I cover oil, gas, power, LNG markets, linking to human development Opinions expressed by Forbes Contributors are their own.
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BEIJING, CHINA – NOVEMBER 09: (CHINA MAINLAND OUT)China President Xi Jinping and wife Peng Liyuan welcome US President Donald Trump and wife Melania come to China for state visit on 09th November, 2017 in Beijing, China.(Photo by TPG/Getty Images)

China will stay the largest incremental natural gas user for as far as we model. To help clear hazy skies and cut CO2 emissions, China must expand the role of cleaner gas in its energy demand portfolio, now at just 6-7% of total supply, versus nearly 30% for the richest economies. Last year alone, China’s gas demand boomed by over 15%, with imports rising by 30%. China just passed Japan to become the largest natural gas importer in the world, although Japan still imports more than twice as much liquefied natural gas (LNG). Key arteries bringing in foreign supplies, such as the China-Myanmar pipeline, however, often sees utilization rates of just 50-60%, due to numerous economical, political, technological, and weather problems.

Data source: EIA

China’s imports of natural gas have been surging.

To be sure, many of China’s LNG sources have issues that open the door for U.S. LNG. For example, Australia has had major domestic gas shortages, Qatar has had an LNG production moratorium and surging domestic demand, and Indonesia needs to keep more of its gas to support a very energy-deprived poor nation. Indeed, it’s quite telling that China’s retaliatory measures against possible U.S tariffs on its goods will NOT include LNG: leadership knows full well the unique value that U.S. LNG brings to the table. Our sales have very flexible contracts (having no rigid destination clauses that restrict resales), short-term contracts, and prices not linked to oil but based on the transparent fundamentals of gas supply and demand. Started in 2016, U.S. LNG has had 60% of its LNG sold on the spot market. Most other suppliers will still need to use less convenient long-term deals to satisfy lenders and fund high cost projects. And we know that we will continue to have plenty of gas to export. In the decades ahead, for every 100 units that U.S. gas demand increases, U.S. gas production will increase 175 units, a 75% surplus for us to export. By 2020, we could control 20-25% of global LNG supply, up from just 8% now. “U.S. Liquefied Natural Gas To China Is A Game-Changer,” with China ranked third in 2017 taking in 15% of U.S. LNG exports.

Data source: IEA

China gets the great majority of its LNG from Australia and Qatar.

Let’s be clear: there’s room for all gas (and oil) exporters in China, the need for imports is surging that fast . After all, supplying China with energy is like trying to fill an olympic size swimming pool with a hose. Don’t worry about somebody else putting another hose on the other side of the pool. Yes, Russia will be a key supplier, but pipeline supplies from Gazprom simply won’t be enough to dim the bright future for U.S. LNG in China. China’s own domestic gas production will continue to increase, but the import necessity can only continue to grow, especially the imported LNG that makes perfect sense in fueling the high demand centers along China’s eastern coast. China’s shale gas production potential is solid but will be limited by a variety of factors, namely a lack of pipelines, difficult geology, remote resources, water shortages, state-controlled prices, and technological barriers (coming from the hesitancy of U.S. shale experts to work with China’s overbearing state-owned enterprises, as well as China’s poor history of protecting intellectual property rights). Today, shale accounts for just 6-8% of China’s total gas production, compared to 85% in the U.SLooking out to just 2030, about 65% of China’s gas demand could need to be met by imports .

Data source: EIA

China’s need for natural gas imports is expected to continue to grow.

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