The U.S.-China trade war is forcing Chinese liquefied natural gas buyers to rush for new suppliers but Nigeria may not benefit because it lacks ability to play in the LNG spot market as the country holds long term contracts.
China had responded to the United States of America by announcing May 13 that it will raise the duty on imports of U.S. LNG to 25 percent from the previous level of 10 percent in retaliation to the U.S. increasing its tariffs on $200-billion worth of Chinese goods. This is making LNG buyers in China gasp for new sources of supply and suppliers.
“U.S. LNG export to China is already seriously affected by the 10 percent tariffs in effect from last year, and we expect it to continue to be so as long as the tariff is imposed”, Per Magnus Nysveen, Rystad Energy head of analysis said.
Rystad Energy forecasts show that Chinese LNG demand will reach 95 metric tonnes per annum (mtpa) in 2025, up from 53 mtpa in 2018. This would make China the world’s largest LNG importer. The U.S., on the other hand, is the fastest-growing LNG exporter thanks to strong Asian and Chinese demand. U.S. export volumes are expected to nearly quadruple over the coming years, reaching 84 metric tonnes per annum (mtpa) by 2025 based on currently sanctioned projects.
But Nigeria has little spare capacity to play in the LNG spot market and cannot take advantage of the window opened up by the U.S.-China trade war. Most of Nigeria’s LNG cargoes are on long-term contracts of up to 20 years in some cases.
“Except Chinese LNG buyers get in on Train 7, which awaits final investment decision later this year, there is no chance that Nigeria’s LNG cargo will find its way to China. LNG projects are usually fully booked before they take off. Nigeria has very little spare capacity for the spot market”, said Victor Eromosele, former chief financial officer at Nigeria LNG Ltd.
Increased China tariffs will create additional headwinds for U.S. LNG projects that are currently awaiting final investment decisions (FIDs). If LNG prices continue to linger around their current low level for an extended period of time, some of the more expensive LNG projects could struggle to offer competitive terms to buyers—and this could result in FID deferrals.
Most of these projects need to secure long-term contracts in order to get financing for their development. China is expected to be one of the biggest contributors in sponsoring new LNG projects over the coming years, and there will be reluctance to sign new deals with US projects as long as this trade war persists.
Texas-based Cheniere Energy and China Petroleum and Chemical Corp (Sinopec) agreed late last year on a 20-year deal that would supply 2 mtpa of LNG to China starting in 2023. This deal could have been signed once the trade tensions were resolved, but due to the heightened tensions, this has not happened.
Sinopec, a late comer to China’s LNG scene compared to domestic rivals China National Offshore Oil Corp (CNOOC) and PetroChina, has said it wants to more-than double its receiving capacity over the next six years to around 41 million tonnes annually, by building three new terminals along China’s east coast and expanding existing facilities.
China’s growing energy thirst, particularly Beinjing’s drive to replace dirtier coal with LNG as source of fuel poses problems not only in the mid-term but in the long-term. China’s growing hydrocarbon demand, including its insatiable natural gas and LNG demand will see more Chinese funds transferred to oil and gas players, a predicament the U.S. found itself in after 1970 when oil production in the country peaked, then started heading south, just as consumption was gathering steam from an unprecedented amount of drivers and automobiles on the road.
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