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2nd wave of US LNG investments may be coming soon

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2nd wave of US LNG investments may be coming soon

A warming trade relationship between the U.S. and China could spur a wave of new LNG investment and help move forward a so-called second wave of American natural gas export projects.

The U.S. and China said in a joint statement on May 19 that both countries had agreed on "meaningful increases" in energy exports as a way to lower the U.S. trade deficit with China. This could lead to $50 billion to $60 billion a year of Chinese investment in U.S. energy exports over the next three to five years, according to U.S. Treasury Secretary Steven Mnuchin.

While energy exports alone are unlikely to meet President Donald Trump's goal of slashing the trade deficit by $200 billion a year, Height Capital Markets said a hiatus in escalating tariff threats could result in new LNG commitments to the tune of $20 billion to $30 billion a year.

"Several products, but especially LNG and ethanol, have the potential to erode trade deficits with China meaningfully even though an enormous commitment to purchasing those products from the U.S. would still only offset a fraction of the overall deficit," the policy-focused investment bank said in a note.

U.S. LNG export hopefuls have made China a prime focus in their pursuit of the long-term contracts that allow them to finance their multibillion-dollar projects. China is expected to become the top LNG importer in the world, and the country has been ramping up its imports of U.S. LNG over the past year. But analysts have cautioned that "all bets are off" if trade relations with China sour, a rising concern since Washington and Beijing began threatening each other with tariffs.

Cheniere Energy Inc., the only company to have signed a binding LNG contract with China, on May 22 reached a final investment decision, or FID, on a third 4.5 million-tonne-per-annum liquefaction train at its Corpus Christi LNG export facility, marking the first FID for new U.S. LNG export capacity since 2015. The company's commitment to expand its Corpus Christi LNG terminal may be the first of several announcements in 2018 that see U.S. LNG developers committing to a so-called second wave of natural gas export projects.

The announcement came as no surprise to analysts and industry watchers, who have heard the company's executives say the final go-ahead was coming after Cheniere signed contracts with trading company Trafigura Pte. Ltd. and a subsidiary of the state-run China National Petroleum Corp.

"This was a sentimental hurdle to clear since Corpus train 3 was far and away the most likely train to advance in 2018," said Katie Bays, an energy analyst at Height Capital Markets. "We expect more FIDs this year, and while this one was no surprise, Cheniere is not the only company to have signed contracts with offtakers."