Zacks here, January 17, 2020:
While the Asian giant has agreed to purchase more goods and services from America, Washington has pledged to cut some tariff on Chinese imports. Notably, the U.S. energy sector is poised to gain heavily from this agreement as an export revival is expected. Of the additional $200-billion purchase of U.S. goods over the next two years (keeping 2017 imports as the base level), $52.4 billion will likely come from the energy sector. Per the deal, China will purchase $18.5 billion worth of energy products this year, followed by $33.9 billion imports in 2021. The energy sector stands second only to the manufacturing sector, which will likely witness $77.7 billion of exports.
Among the energy products such as liquefied natural gas (LNG), crude oil, natural gas, petroleum products, LNG is expected to gain the most from the deal. Following the U.S. shale revolution, abundance of natural gas in the domestic market and growing demand for cleaner energy sources globally have led to the development of several LNG terminal projects in the past few years. As such, the Washington-Beijing deal can open up a huge market for the U.S. LNG industry.
While China is set to become the biggest LNG importer by the end of the decade, the United States is likely to be the largest exporter by 2025, ahead of Qatar and Australia. This makes the two countries a perfect fit even though the whole vision is largely dependent on the fate of the existing 25% Chinese LNG tariff. This was levied during the trade war and its future is still uncertain.
The existing LNG export facilities like Cheniere Energy, Inc.’s LNG Corpus Christi, TX terminal are poised to gain from the renewed opening to the China market. Jack Fusco, chief executive officer of Cheniere was present at the trade deal signing ceremony. He said, “The phase one agreement between the United States and China is a step in the right direction that will hopefully restore the burgeoning U.S. LNG trade with China,”. Other companies like ConocoPhillips COP with Freeport LNG, Sempra Energy SRE with Cameron LNG will likely grab a share of this market. Tellurian Inc. TELL, a newcomer in the LNG game, is also expected to thrive from the recent developments.
Cheniere Energy this week reaped the benefits of the Phase 1 trade deal between the United States and China, with its shares rising considerably on news that China may buy more than $50 billion worth of additional U.S. energy products, including LNG.
A day earlier, S&P Global Platts reported that natural gas flows into liquefaction trains across the six operating LNG facilities in the United States had shot up to 8.5 billion cu ft in December. This was a record-high amount and represented almost a tenth of the total natural gas production in the country.
New LNG capacity additions were strong last year, providing a much-needed export venue from growing U.S. gas production that pushed prices to historic lows, including several occasions on which they traded below zero. This year, S&P Global Platts analysts expect the addition of new capacity to continue but at a slower pace as competition intensified internationally.
Cheniere Energy is by far the largest U.S. producer and exporter of liquefied natural gas and its Sabine Pass plant is the oldest and largest one, with five liquefaction trains in operation and a sixth one under construction. Cheniere also operates a smaller plant in Corpus Christi in Texas. This one has two liquefaction trains in operation and a third one under construction.