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China lends US gas producers a big helping hand

China is offering life support to beleaguered US and other liquefied natural gas (LNG) producers hit by the double whammy of a multi-year supply overhang and the Covid-19 pandemic’s rising economic fallout. China’s procurement of US LNG represents a certain olive branch after a 13-month punitive halt on purchases due to the US-China trade war.

On April 20, the US LNG tanker Maran Gas Vergina berthed in Tianjin, where oil and gas super majors Chinese National Offshore Oil Company (CNOOC) and Sinopec operate LNG receiving terminals. Three more US gas cargoes are expected to arrive later this month and two in May, Refinitiv shipping data shows.

The delivery comes just two months after Beijing announced it would grant exemptions on retaliatory duties imposed on nearly 700 US goods including some commodities, and after Washington and Beijing reached a so-called Phase 1 trade deal late last year. Beijing promised to boost its US energy purchases by as much as US$52.4 billion over the next two years as part of the trade agreement, which kicked in on January 15.

Analysts believe that China is trying to show that it’s at least partially sticking to its side of the deal through LNG imports. To date, China has not imported any crude oil from the US, even as the price for West Texas Intermediate (WTI) is trading at a growing differential to Brent and other crude grades Beijing is now stockpiling.

To be sure, five LNG cargoes is just a drop in the bucket for China to fulfill its $52.4 billion pledge over 2020 and 2021. For China to meet its Phase 1 trade deal commitments, it will have to ramp up purchases of both LNG and US crude. US LNG imports to China face headwinds, however, as spot prices for the fuel in Asia are now trading at multi-year lows.

China slapped a 10% duty on LNG imports from the US in the fall of 2018 in a pushback against US imposed duties on Chinese goods. Beijing later raised them to a cost prohibitive 25%, sending several US LNG project proposals into a tailspin as they sought new investors and long-term off-take agreements to keep the projects afloat.

An LNG terminal in Yangkou Port in Nantong city, which is in China’s Jiangsu province. Photo: AFP

The lack of Chinese involvement in new US LNG project proposals has threatened the industry’s second wave of development and could put American ambitions of becoming the world’s top LNG exporter in jeopardy.

Currently, Australia is the top global LNG exporter, followed by Qatar and then the US, which bypassed Malaysia last May.

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