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Race to China is on as 5th tanker carrying US LNG cargo said to be en route

A fifth tanker that loaded at a U.S. liquefaction facility was said to be heading toward China on April 8 as tariff waivers appear to be encouraging more deliveries following a halt that has lasted a year.

The Greek-owned Maran Gas Vergina, which loaded at Freeport LNG, was scheduled to arrive in China around April 19, according to a market source with direct knowledge of the current plan.

The tanker, chartered to BP PLC for a spot voyage, was in the North Pacific on Wednesday, S&P Global Platts Analytics vessel-tracking software cFlow showed. Based on its target arrival date, the tanker, assuming it does not change its expected destination, could be the first U.S. LNG export cargo to be delivered to China since March 2019.

Duties of 25% that Beijing imposed in retaliation for U.S. tariffs on Chinese goods have made deliveries to China uneconomic, especially when factoring in weak Asian demand and low international prices exacerbated by the coronavirus pandemic.

But according to industry sources, Chinese companies that will be receiving the cargoes that are now on the water heading to China were granted exemptions removing the duties from imported U.S. LNG. Most businesses in China are resuming commercial operations and employees are returning to work this week, raising expectations of an uplift in downstream gas demand.

While the cargoes heading to China, the world's second-largest LNG importer, are good news in the near term for U.S. exporters, the demand picture elsewhere in Asia is not so bright.

The Platts Gulf Coast Marker, which tracks the value of a spot cargo loading from the U.S. Gulf Coast, was assessed higher Wednesday at $1.60/MMBtu. This was on the back of strengthening LNG prices in Europe, which continue to be one of the key markets for U.S.-sourced cargoes.

But the Gulf Coast Marker has been trending below equivalent U.S. Henry Hub futures since late March, implying that the margin between the market value of feedgas and a free-on-board cargo is likely to be very thin, if not negative, Platts Analytics data shows. The Henry Hub futures price for May was last assessed at $1.852/MMBtu, more than 25 cents above the equivalent Gulf Coast Marker value.

"Fundamentals are now starting to point in a bearish direction in Asia, especially outside of China," said Jeffrey Moore, Platts Analytics manager for LNG in Asia, during a webinar April 8. "There simply is less demand available within Asia than what we expected at the beginning of the year. We are seeing this on a weather-normalized basis."

Moore added, "It is our expectation that downward pressure will remain on spot prices because there is so much supply in the market."

Besides the Maran Gas Vergina, the Naturgy-chartered Hoegh Giant, RWE-chartered Palu LNG and Cheniere Energy Inc.-chartered Cool Explorer showed captain's destinations in China as of the afternoon of April 8. The Total SA-chartered SK Resolute, which loaded at Cameron LNG in Louisiana, also was showing a destination of China, though its destination has changed multiple times, including at one point to Taiwan.

The Hoegh Giant and Cool Explorer loaded at Cheniere's Sabine Pass export terminal in Louisiana, while the Palu LNG loaded at Cheniere's export terminal near Corpus Christi, Texas, cFlow shows. Delivery dates for the five cargoes were set for between April 19 and May 5, according to cFlow.

Officials at the U.S. terminals have declined to discuss details of customer deliveries. Sources at Guanghui Energy and ENN confirmed they had obtained tariff exemptions on U.S. LNG cargoes shortly after submitting their applications. Chinese national oil companies were also heard to have obtained these exemptions recently, market sources reported.

Harry Weber, Luke Stobbart and Shermaine Ang work for S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.