China prepares for life without US LNG

New suppliers to China

To this end, China is already substituting US LNG with supplies from Qatar and Australia, both of which are shorter shipping distances.

New LNG suppliers are now marketing aggressively to Chinese buyers and to this end Petro China has recently signed an agreement with Qatar Petroleum to buy 3.4 million tonnes of LNG annually for the next 20 years. Qatar Petroleum has also decided to add a fourth liquefaction train and it has lifted its self-imposed moratorium on expansion of LNG liquefaction capacity, which will see its liquefaction capacity rise from 77 mtpa in 2018 to 110 mtpa by 2023.

Some comfort for the US

US LNG suppliers will no doubt regret the loss of Chinese business, but they can take some comfort from the fact that demand for LNG in other Asian countries continues to grow.

In the first half of 2018, Asian importers accounted for 55% of total US LNG exports. US LNG is an attractive option for Asian importers such as India, Japan and South Korea, as US sale and purchase contracts are flexible and are not linked to crude oil prices, which effectively shields LNG sales from wild fluctuations in price.

While there is a clear trend that US LNG movements to China have declined in 2018, there is equally a trend of growing US exports to other Asian destinations. We see Taiwan and South Korea as the main growth markets for US LNG, and growth in trade on these routes will more than compensate for reduced trade between the US and China.