The common interest of Trump, Xi and project carriers: LNG

A swift trade deal between the US and China could propel the US to the top of China’s LNG supplier list, shows a report from Morgan Stanley. That would be a win-win-win for Trump, Xi and project carriers. 

A trade deal this year between the world’s two largest economies will likely lead to large Chinese purchases of American LNG, which would help shrink the US trade deficit, Bloomberg reports based on a new report from Morgan Stanley.

The American bank predicts this would boost the US share of China’s gas imports to 21% by 2025, making it China’s largest LNG supplier. If the rivals do not reach a pact the US share would grow to only 5%, in comparison to 2% last year.

The US is quickly expanding its number of LNG projects and is set to become the world’s No. 1 supplier, while China is expected to become the largest importer some time early next decade.

“A higher LNG trade from the US to China would potentially be a win-win deal for both,” Morgan Stanley’s analysts wrote. It can reduce the US trade deficit with China by $17 billion annually and help China save $1.8 billion a year in energy costs, the bank estimates.

Project cargo

If the US and China reach a deal, the project cargo market is also expected to benefit from the growing American LNG industry, as several large plants need to be built in order to meet demand.

Analysts of WoodMackenzie say LNG could become “a major boon for EPC-contractors and other providers along the supply chain” as final investment decisions are taken on the construction of a large number of new LNG plants, especially in the US. According to WoodMackenzie, almost 90 million metric tonnes per annum (mmtpa) of liquefied natural gas is expected to start construction over the next two years, with total capital expenditure reaching more than 200 billion dollars between now and 2025.

Currently, however, those projects are jeopardised by the trade war. Without a trade deal, final investment decisions are likely to be delayed, Rystad Energy notes. Based on currently sanctioned projects, the Norwegian analyst firm expects that US LNG export volumes will nearly quadruple over the coming years, reaching 84 million tonnes per annum (mtpa) by 2025.

“Most of these projects need to secure long-term contracts in order to get financing for their development. Rystad Energy expects China to be one of the biggest contributors in sponsoring new LNG projects over the coming years, and there will be a reluctance to signing new deals with US projects as long as this trade war persists,” said Sindre Knutsson, Senior Analyst at Rystad Energy’s Gas Markets team.

Although the trade war just recently intensified after Trump increased tariffs on many Chinese goods, Morgan Stanley still expects the two largest economies to reach a deal this year.

The future of the oil & gas market will be one of the key topics of the Project Cargo Summit, a two-day international conference about the transport of large and heavy cargoes, which is organised by Promedia Group on the 11th & 12th of September, 2019 in Rotterdam. Rystad Energy will be one of the speakers at this young and ambitious event. For more information about this dedicated project cargo and heavy-lift event, please visit www.projectcargosummit.com.

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