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Can We Flip Some of Our Trade Deficit with China by Selling It LNG?

natural gas now - Tom Shepstone ReportsTom Shepstone
Shepstone Management Company, Inc.

It’s no secret we run a trade deficit with China but, we may have found at least a partial solution with LNG. We’re an LNG exporter and they’re the market.

An article by Brian Wang on the website Next Big Future uses some interesting data from the Energy Information Administration (EIA) to make a fascinating point; China is on it way to being the world’s biggest market for LNG and the U.S. is headed toward being the No. 2 global exporter of the stuff. That sounds a lot like an opportunity to reduce our trade deficit with China, doesn’t it?

The EIA data shows we’re already more of a supplier than a consumer of gas on the world stage:

The United States was a net exporter of natural gas in the first quarter of 2018, with net exports averaging 0.5 Bcf/d. Rising LNG exports and pipeline exports have contributed to a shift from the United States being a net importer of natural gas as recently as the first quarter of 2017.

This chart summarizes the big picture:

trade deficit with China

Notice how the green is bending down overall as we are transitioning toward becoming a global supplier of natural gas. As the NextBigFuture article also notes, it is expected LNG will eventually make up about 14% of total U.S. natural gas production and should reach about 6% as quickly as 2020. LNG export facilities are now in operation or under development in several locations. The Cove Point facility near Baltimore will be especially well-suited to moving Marcellus Shale gas to foreign markets (and maybe even Boston, which ought to qualify given the wacky nature of their politics and the strange way they talk up there).

The EIA further predicts that global LNG exports will rise 30% by 2023 and the United States will become the world’s second-largest supplier of LNG earning us the Avis award for trying harder and positioning us for even bigger gains down the road or, perhaps should we say, across the pond.

trade deficit with China

The above chart show shows we are also gaining on exports by pipeline as more gas goes to Mexico but look at the light blue indicating how much LNG exports by ship are growing. It’s rather amazing. Now, take a look at these stats (emphasis added):

China will be world largest importer of natural gas in 2019.

China will increase natural gas imports by 60% between 2017 and 2023 to 376 billion cubic meters [37 billion cubic feet per day or 13.7 trillion cubic feet per year] (International Energy Agency Forecast).

China’s liquefied natural gas imports will be up to 93 bcm by 2023 from 51 bcm in 2017.

China will expand gas storage capacity to meet increased seasonal needs during winters. China has about 10 billion cubic metres of storage space, or about 4% of its annual demand. Germany and Italy have capacity amounting to 25 per cent and 33% of demand.

Global gas demand will grow at an average rate of 1.6% a year, reaching just over 4,100 billion cubic meters (bcm) in 2023, up from 3,740 bcm in 2017.

These are astounding statistics and indicate the U.S., as the likely future second largest exporter of LNG, will have an enormous opportunity to sell to China, the largest importer. This means we’ll have the potential to put a nice dent in our trade deficit with China, creating all sorts of benefits here at home in places such as Bradford Susquehanna and Washington Counties, Pennsylvania, Moreover, this doesn’t reflect the trade deal President Trump just made with the E.U. to take a lot more of our LNG. Will a similar deal be made with China? I think we can count on it.

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6 thoughts on “Can We Flip Some of Our Trade Deficit with China by Selling It LNG?

  1. Why does New England import LNG from #1 Russia? Seems like New England Pols are in collusion with Russia? Why can’t New England get it’s LNG from #2 USA?

  2. Reply to Brian Campbell:

    New England bought the Russian gas indirectly. A British company bought the Russian cargo and sent on to Boston because it would fetch a better price there than elsewhere. Russian and American gas, like so many other commodities, is fungible, it burns just as well as any other natural gas. The same thing is so likely to happen again this winter., the Boston Globe wrote a scathing editorial about “our Russian pipeline”.

    https://www.bostonglobe.com/opinion/editorials/2018/02/12/our-russian-pipeline-and-its-ugly-toll/K0wQ7FBTGR756DqorYkwxN/story.html

    The Jones Act requires cargo shipped between US ports be shipped in American built, flagged and crewed vessels. The US does not produce LNG tankers, so modifying the act to allow foreign built, but American flagged and crewed, vessels, would let US natural gas from Cove Point be shipped directly to Boston, New York, etc. If shippers or gas companies had shown any interest, the Republican controlled Congress could have acted at anytime, but the silence from all sides is deafening.

  3. Of course, anything you can sell the Chinese would decrease the balance of payments. But the Russians are already building another natural gas pipeline to China and have plans to extend lines to both Koreas and Japan. I also don’t think Trump’s ill advised trade war is helping the sale of US gas. The Russians, Australians and Qataris must be overjoyed at the gift he has given them.

    https://steelguru.com/gas-oil/gazprom-cnpc-agreed-construction-of-another-gas-pipeline-between-russia-and-china/498542

    In the short term the Chinese may have no other choice than to use our gas, but a system of 48 inch Russian pipelines will be hard to beat with expensive LNG tankers.

    • More bad news on the trade war front:

      https://www.marinelink.com/news/chinese-tariffs-lng-oil-may-threaten-us-440273

      “China included LNG for the first time in its list of proposed tariffs on Friday, the same day that its biggest U.S. crude oil buyer, Sinopec, suspended U.S. crude oil imports due to the dispute, according to three sources familiar with the situation.”

      “China, which purchased almost 14 percent of all U.S. LNG shipped between February 2016 and May 2018, has taken delivery from just one vessel that left the United States in June and none so far in July, compared with 17 during the first five months of the year.”

      “U.S. LNG “producers will try to move to other locations,” said Dominick Chirichella, director of risk management, trading and advisory services at EMI DTN in New York, noting there will likely be a “big push” to places like Europe and Japan.”

      • Pose your concerns to Thomas Wictor. ..he has most of the answers when it comes to President Donald J. Trump and his methods.

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