Trade Tiffs, U.S. Exports, and Asian LNG: Part I
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Trade Tiffs, U.S. Exports, and Asian LNG: Part I

by | published July 16th, 2019

As we move into the second half of 2019, one of the major revisions anticipated in the global energy market remains under pressure. This one expected U.S. natural gas producers to be occupying a pivotal position in meeting a rising Asian energy need.

Today, I will lay out the dimensions of this changing playing field, one that holds significant promise for energy investors. And on Thursday, I will lay out the current picture.

Asia is fast becoming ground zero in the fashioning of ongoing global energy demand.

In fact, all indicators point toward Asia comprising the primary demand generator worldwide for the next several decades.

Well, the American natural gas production sector has accelerated as promised, but it has also run into an international roadblock largely the result of Washington trade policy. This is what I will be discussing this week.

But first, the background…

My Public and Private Roles in the Energy Business

In 2018, the U.S. produced 21.5% of the world’s natural gas, more than any other country.

The price of domestic gas has been declining in the face of robust production and a leveling off in demand expansion. As a result, the export of liquefied natural gas (LNG) has become a key in securing a continuing market for the massive U.S. shale gas reserves.

Yet this is turning out to be a factor smack dab in the middle of a major geopolitical tussle. As such, it figures prominently in an environment in which I have been a figure for a while now.

A few months back, I provided a major presentation at the OSEA Conference in Singapore.

OSEA is the premier annual Asian oil and natural gas conference. The audience comprised of government, company, trading, and banking figures well-versed in the dynamic nature of the Asian market.

My address centered about how U.S. LNG would impact the Asian energy balance moving forward. The audience shared my overall view of how U.S. gas exports would transform the energy landscape, and so did my private network of finance contacts who had decided to hold one of their own meetings at the margin of OSEA.

Veteran readers of Oil & Energy Investor well know that this has become a frequent practice of the group of major investment players I advise. I will play the intermediary between a major international energy conference (in which I play a public role) and sidebar meetings at which investment parameters are laid out and scenarios discussed.

Most of my readers recall that this was also the recent role I served shuttling between public and private meetings at the annual Iraqi Petroleum Conference in London (where I had a prominent role on the program), and corollary meetings in Paris with investors and finance folks having an interest in Iranian matters.

The U.S.-China trade tiff was well underway by the time I made my presentation in Singapore.

As a result, while market projections were already being laid down on how U.S.-sourced energy would transform investment scenarios, politics was intervening.

 

Dr. Moors addressing the OSEA Conference in Singapore, November 28, 2018

 

Where LNG Focus Is Heading

While attending to the conference agenda wearing one hat – expert keynote speaker and analyst – I was shuttling to strategy discussions with those controlling investment billions while wearing another – private counselor and adviser.

To the OSEA conference members, I laid out the main elements when it came to U.S. LNG export opportunities to Asia.

In the private meetings, that issue and others were being forged into a broader multi-year investment plan.

My public OSEA address took 90 minutes and included many slides as part of the analysis. All of those below were part of my presentation in Singapore.

One documented the focus on energy demand. That focus would center on China initially, then move on to India being the main driver, but all would be illustrative of an Asian control over that demand at least through 2035.

Other slides pointed out the rising part LNG would play in meeting the accelerating demand, both short term –

and further out:

Against this backdrop, the rising export of LNG from the U.S. was to be the main supplier.

This was, by the way, one of the fundamental working assumptions of the high-end investors I was advising during the private sessions.


It is not simply an expanding Asian market that is making U.S. LNG exports possible; there is also a crucial physical transformation back in the Western Hemisphere.

The completed widening and deepening of the Panama Canal has cut the costs of transporting LNG from Gulf Coast U.S. to Asia. The canal can now service LNG tankers:

A record fourth LNG tanker passing through the Neopanamax Locks of the Panama Canal on the same day. October 1, 2018 – Photo source: Panama Canal Authority

However, central to the U.S. LNG export strategy to Asia is the Chinese market.

And therein lies the problem arising from the tariff disagreement.

Here’s Where the Trade Tiff Comes Into Play

By the time I presented in Singapore, the dominant Asian move of U.S. LNG was already underway.

But the main (and essential) Chinese contribution to that trend was becoming suspect.

Source: China General Customs Administration, Fitch Solutionist

There is also a second, more strategically dangerous element. This is a separate factor I have discussed on several occasions in previous Oil & Energy Investor installments. The acrimonious tension escalating in the South China Sea between U.S. and Chinese naval forces calls into question the security of LNG transit routes (read more about this situation – and what the U.S. government is doing about it – right here).

The recent pause in mutual trade acrimony between Beijing and Washington does little to assuage concerns over this parallel geopolitical hot point. The South China Sea crisis remains outside the gambit of tariff negotiations.

So keep an eye on your inbox. It is against this backdrop that the next Oil & Energy Investor columnwill address where U.S. LNG to Asia stands today.

Sincerely,


Kent

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