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US LNG finds outlet in other Asian countries amid trade dispute with China

As U.S. LNG cargoes remain cut off from China as a result of ongoing trade tensions between the two countries, other importers in Asia have continued to help absorb rising shipments of the American commodity.

U.S. LNG exports to countries including Japan and South Korea have been strong through August, according to the most recent data from the U.S. Department of Energy, released Oct. 16. Japan was the destination for about 21.1 Bcf of U.S. LNG during the month, making it the top destination among all countries in August. About another 13.3 Bcf departed in August for South Korea, which is the top overall importer of U.S. LNG since the first export of the commodity departed from the U.S. mainland in 2016 at Cheniere Energy Inc.'s Sabine Pass LNG terminal in Louisiana.

But China is still expected to become the world's biggest importer of LNG within a decade, making it a critical market for LNG suppliers. The U.S. LNG industry is waiting for officials in China and the U.S. to hash out a resolution to the dispute, after a partial deal reached between the countries on Oct. 11 left out energy products. A 25% retaliatory tariff China imposed on U.S. LNG earlier in the year remains in place.

"China is the largest consumer of natural gas in the world. We are the largest producer of natural gas in the world. It makes good sense for us to be sending our LNG there," said Charlie Riedl, executive director of industry trade group Center for Liquefied Natural Gas, at the LDC Gas Forums' Gulf Coast Energy Forum in New Orleans on Oct. 14. "The tariffs have hurt our industry. It has slowed down our ability to do business. It has slowed down our ability to reach final investment decisions."

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For much of the year, greater exports to major demand markets in Asia were also discouraged by a global oversupply that has depressed spot prices. Europe and Latin American countries proved critical outlets for U.S. LNG. Europe was the top destination for U.S. LNG in the first quarter of 2019 and Latin America was the top region in the second quarter.

In August, about 17.2 Bcf of U.S. LNG headed for Spain, while about 13.7 Bcf departed for Mexico and about 10.3 Bcf left for Brazil. But the share of U.S. cargoes headed to Europe and Asia were roughly the same.

Overall shipments during the month were about 138.4 Bcf. That was about 12% less than the total U.S. LNG export volumes in July, but the drop coincided with scheduled maintenance work on two of the five liquefaction trains at Sabine Pass during the first half of August.

Cheniere is the only major U.S. LNG exporter to have a long-term off-take contract with a Chinese buyer.

But Cheniere has maintained that it has been insulated from the tariffs that China is imposing on imports of U.S. cargoes because of the take-or-pay nature of the agreement with its counterparty, PetroChina. PetroChina has elected to divert the American cargoes, Cheniere President and CEO Jack Fusco told a small group of reporters in September on the sidelines of the Gastech conference in Houston.

"That's one of the benefits they get from U.S. LNG is flexibility, and they have been very creative as far as swapping with either Korea or with Japan, and they pay us, so it's a match made in heaven in that respect," Fusco said.

But the executive also acknowledged that it will be more challenging for U.S. exporters and developers to find buyers if they cannot access the Chinese market over the longer term.

"We all just have to work a little bit harder to find those opportunities," he said.