U.S.-China trade war spells LNG opportunity for Canada

Canada’s proposed LNG projects are expected to be more cost competitive than U.S. ones in delivering boatloads of super-cooled natural gas to Asian markets when they are finally built, according to the Canadian Energy Research Institute.

CERI president and CEO Allan Fogwill says that proposed LNG facilities on Canada’s West Coast are capable of delivering the commodity to northern Asian markets for roughly $1 per million cubic feet less than their American competitors, to as low as US$7.54 per mmbtu, compared to US$8.4 for American LNG projects.

The cost advantage comes partly from Canada’s closer proximity to Asia, Fogwill told a business audience Wednesday.

More advantages have arisen as Beijing and Washington escalate their tariff war on each other’s products. China slapped 10-per-cent tariffs on LNG imports from the U.S. on Tuesday.

China is the world’s thirdlargest importer of LNG but its five-year plan calls for rapidly increasing the use of natural gas in its energy mix. As a result, China is on pace to surpass South Korea and Japan to become the world’s largest market for LNG in the next few years.

“In the 12 months up until June 2018, China was the second largest buyer of U.S. LNG, accounting for approximately 3 (million tonnes per year), with (Royal Dutch) Shell being the largest seller,” Wood Mackenzie research director Giles Farrer said in a note.

He said that Chinese buyers have reduced purchases of LNG from the U.S. over the summer months as U.S. President Donald Trump hit the country with tariffs and China responded with tariffs of its own.

The latest Chinese tariff target — LNG — could affect the development of new U.S. natural gas export projects.

“It restricts the target market for developers of new U.S. LNG projects trying to sign new longterm contracts,” Farrer said. “However, there is still plenty of appetite for second wave U.S. LNG projects from other buyers in Asia and Europe ...”

Meanwhile, Canadian LNG proponents have yet to proceed with any large-scale developments, and project delays and cancellations have led to mounting frustrations within the domestic energy sector.