By Stephanie Yang and Timothy Puko
U.S.-China trade tensions threaten a promising area of growth in
U.S. energy: natural-gas exports.
While the trade dispute hasn't impacted near-term prices, some
analysts believe it could disrupt exports and slow new
infrastructure expansions. That could weigh on natural-gas prices
in the longer term because U.S. producers are quickly running out
of places to sell an unrelenting rush of supply.
Earlier this month, in response to U.S. tariffs, China proposed
its latest round, including a 25% levy on liquefied natural gas, or
LNG.
The two countries on Thursday announced they would hold
lower-level talks on trade issues later this month.
If the sides can't come to an agreement, natural-gas tariffs in
China could lead to opportunities for other major LNG exporters,
such as Australia and Qatar, if U.S. gas becomes more expensive.
China also may tap supply from Russia via a major pipeline under
construction, or from its own domestic production in the coming
years, analysts said.
"China will look elsewhere in the world to source the
commodities they need," said J. Alexander Blackman, senior
executive at Standard Delta LLC, a Houston-based commodities firm
with operations in Asia.
U.S. exporters, in turn, will need to sell LNG to other
countries if they are cut off from the rapidly growing Chinese
market. Since exports wouldn't be hit immediately, analysts doubt
tariffs would lead to a sudden swelling of supplies or depressed
prices.
The more chilling prospect is that companies investing in U.S.
export infrastructure scale back plans or put them on hold.
"There's no way in the current environment that anyone's going to
be signing any deals," said Neil Beveridge, senior oil analyst at
Sanford C. Bernstein & Co. "It's causing a big overhang on what
can get done."
That could inhibit producers' future ability to access the
international market, limiting the growth of the U.S. natural-gas
sector and an avenue to work off excess supply.
As the shale boom took off, U.S. companies rushed into projects
to superchill gas into liquid so it can be loaded onto tankers and
traded around the world. Growing demand for LNG and unexpectedly
fast growth in China in particular have been a boon for U.S.
producers hoping to sell natural gas overseas as an outlet for
their record production.
"China could be really pivotal in underpinning that U.S. LNG
growth," Mr. Beveridge said.
Since 2011, companies such as Houston-based Cheniere Energy,
Inc. and Dominion Energy, Inc. in Richmond, Va., have spent about
$44 billion constructing the plants and terminals necessary to
export LNG, according to energy consultancy Wood Mackenzie.
China's voracious appetite for the fuel has helped drive the
industry's transformation. Thanks to its need for cleaner-burning
fuel, the country is expected to become the world's largest
importer of natural gas next year, according to the International
Energy Agency. The country is aiming to boost natural-gas use to
15% of energy consumption by 2030, up from about 6% in 2015.
As a result, "trade policy is fundamental," Total SA Chief
Executive Patrick Pouyanné said to reporters at the beginning of
the World Gas conference in Washington in June.
The French energy company owns a minority stake in the $10
billion Cameron LNG export plant in Hackberry, La. "I hope [the
U.S.] will not lose the Chinese market," he said. The U.S. has "a
very good place, a game to play in the LNG business. But the market
is mainly driven by Asia and by China."
For the moment, traders are taking the trade dispute in stride
as they wait to see how the threats play out. Last week, prices of
natural-gas futures for September delivery rose to seven-week highs
as weather-related demand kept the market buoyed.
"There's some flexibility with what's on the list and what China
actually does," said Jason Gabelman, vice president at Cowen &
Co who covers the energy sector.
Other analysts are skeptical that today's trade tensions will
derail the long-term trend of LNG exports in the U.S., which the
IEA expects to become the second-largest exporter by 2022.
Even before China announced the potential LNG tariffs, though,
energy executives were on edge. The World Gas conference this year
drew high expectations for a slew of deals for U.S. LNG, but saw
little result.
The Friday night before the June conference, executives at
Liquefied Natural Gas Ltd., a Houston-based developer of gas-export
projects, hosted counterparts from a Chinese oil company to wrap up
yearlong negotiations to help finance an 8-million-ton project in
Louisiana.
But toward the end of the dinner in Houston, the Chinese
executives made it clear they wouldn't sign until trade fears are
resolved, LNG CEO Greg Vesey said in an interview.
"It's the fear of the unknown," Mr. Vesey said. "It puts a big
slowdown on everything."
Write to Stephanie Yang at stephanie.yang@wsj.com and Timothy
Puko at tim.puko@wsj.com
(END) Dow Jones Newswires
August 17, 2018 07:14 ET (11:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.