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The US Improving Export of More Liquefied Natural Gas to Asia

An important discussion about the exploration and exportation of Natural Gas to Asia took place recently during a comprehensive Economic Dialogue between the US and China. The event that was hosted at the US Department of Treasury in Washington D.C. on 19th July, 2017 was honored to have the presence of Wang Yang, the Chinese vice Premier.

Top on the agenda was the question about the possibility of the U.S. exporting its Liquefied natural gas to Asia, specifically to China. Mr. Wang said yes to this question – Will U.S. liquefied natural gas find a market in Asia? It is noteworthy that after a protracted period of strong anti- Chinese feelings about trade coming from the White House, the current administration is adopting a more conservative approach to finding solutions to the trade issues and imbalances with China.

Incidentally, the talks came at a time when about 35 percent of all LNG from the US has reached Asia after an 18 month export period. The Chinese vice premier was upbeat that the presence of US LNG export in the Asian market was already taking strong roots and the trend would continue. Most of the giants from Asia are shifting from over-reliance on coal and adopting more us of natural gas.

Although the process of gas was higher in the Asian markets about 4 or 5 years ago, now they are as low as in the US, and so the conditions are favorable for diversification. Many industry insiders see it as a “sweet spot” for building and accelerating more demand. The prospects of more export from the US increases because presently many of the Asian giants are incapable of producing adequate supplies of their own.

It is seriously doubted whether their production can match the existing market demands. For instance, although there are overwhelming opportunities for shale in China, the future possibilities of exploitation are limited because of several factors such as existence of the resources in remote areas, dearth of pipelines, low prices, shortages of water, and the uncertainties of gaining expatriate expertise because of the difficulties of dealing with enterprises owned by the state. Other negative cultural and political factors also come into interplay.

Interestingly, the Chinese production of gas has experienced an impressive increase of about 145 Bcm or 45 percent since 2010, however, China has less that 1 percent of proven reserves for gas globally although it accounts for about 7-8 percent of the total global demand.

Significantly, the contracts that have existing between Japan and Qatar are raising eyebrows because in the early 2020s they will come to an end. It is an impending event that is causing concern in the market because Japan is the leading global importer of LNG. The destination clauses for the LNG contracts are restrictive and so Japan has accented to ending them. The US export capacity will reach full potential, as many industry insiders believe, in 2020s due to the opening up of a wedge in LNG demand.

Lack of gas market liberalization and the inability of sufficiently investing in infrastructure for gas by many Asian countries are some of the factors posing a big challenge. Other factors that impede trading in gas are like cumbersome regulations, rigid contracts, price control, and inflexible markets. If headways have to be made, policies in China will have to be modernized so that a larger segment of the population can have access to gas.

Presently in China, only about 40 percent of the population gets gas. If countries were rapidly enabled to grow their usage of gas through a hub-based system of trade, then the potential for export to Asia would increase.

 

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