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China-US relations

US natural gas exports set to jump as Donald Trump-Xi Jinping summit deal kicks in

Cheniere Energy of the US will supply China National Petroleum with about 1.2 million tonnes of LNG annually through to 2043

PUBLISHED : Saturday, 10 February, 2018, 7:42am
UPDATED : Saturday, 10 February, 2018, 10:32pm

China National Petroleum Corporation and US natural gas supplier Cheniere Energy have reached an agreement that will boost US exports of liquefied natural gas, in the biggest development among the deals announced during US President Donald Trump’s trip to Beijing in November.

Cheniere will supply CNPC with about 1.2 million tonnes of LNG annually starting this year and continuing through to 2043, according to an announcement by the US company, which did not put a value on the shipments.

The volume of LNG contracted is worth about US$263 million per year, according to the average LNG export price posted by the US Energy Information Administration. That value does not take into account discounts for long-term supplies or other factors specific to the deal.

Trump and Chinese President Xi Jinping witnessed the signing of deals billed to be worth US$253 billion during the US leader’s state visit to China, although some pundits pointed out that many components of the package were memorandums of understanding or other non-binding accords, including the CNPC-Cheniere accord.

More than a year into his tenure, Trump is under pressure to show results in his efforts to bring more balance to the US trade relationship with China. Although the president made this a top priority when he took office, the US trade deficit with China, its biggest trading partner, grew to a record US$276 billion in 2017.

Xi Jinping, Donald Trump oversee signing of US$253 billion in trade deals

Trump’s frustration over a lack of progress in rebalancing the relationship resulted in multiple investigations into China’s trade and investment policies. These include a probe into China’s practice of so-called forced technology transfer as preconditions for entry into some of the country’s markets.

The friction threatens to jeopardise the world’s largest bilateral trading relationship, valued at US$648 billion in 2016, and two-way foreign direct investment worth more than US$250 billion in the past 10 years.

The Cheniere deal may help to address this friction by bolstering the US’ entry into the LNG export market.

The company is the US’ only LNG producer, having begun exporting LNG in 2016, after it completed its first LNG terminal in Louisiana. More US LNG producers will bring their export terminal projects online in the next two years, including Dominion Energy’s plant in Maryland.

A look inside Beijing’s US$253 billion trade package for Trump

The US$250 billion in trade deals announced in November includes other energy agreements. For example, China Energy Investment Corp plans to invest in shale gas, power and chemical projects in West Virginia, an initiative that is still an MOU.

China Petroleum and Chemical Corp, the state energy group, signed a US$43 billion agreement – which as yet is non-binding – to jointly explore for natural gas in Alaska. China’s sovereign wealth fund, China Investment Corp, will offer financial support for this deal.

In the meantime, Washington and Beijing continue to talk about the trade and investment imbalance.

US Secretary of State Rex Tillerson met Chinese State Councillor Yang Jiechi in Washington this week for a working lunch in which they “discussed the need to achieve a fair and reciprocal bilateral economic relationship”, according to a US State Department announcement.

Donald Trump and Xi Jinping’s grand gestures can’t paper over diplomatic divide

Trade and investment would be a focus of the next bilateral diplomatic and security dialogue, to be held sometime in the second quarter this year, Tillerson’s office said.