Exclusive: Cheniere in talks to boost LNG shipments to China

HOUSTON/NEW YORK (Reuters) - Cheniere Energy Inc said on Friday it has had extensive negotiations with China about increasing U.S. liquefied natural gas exports, as a new trade deal paves the way for a second wave of LNG investment in the world’s fastest growing gas supplier.

The Trump Administration on Thursday said it reached an agreement with China to increase trade access for some U.S. companies to China, which is expected to include LNG exports.

That should benefit several companies building LNG export terminals in the United States, as the U.S. is forecast to become the third largest LNG exporter by the end of next year.

Cheniere is currently the only company able to export large cargoes of LNG from the continental United States, giving it a leg up now to ink long-term contracts with China, the world’s largest growth market for gas.

“We’re heartened by this trade deal for its potential to increase Chinese access to American LNG,” Cheniere spokesman Eben Burnham-Snyder told Reuters.

“We have had extensive negotiations with the Chinese over the last month,” he said. Cheniere has also shipped LNG to 20 other countries around the globe, and is in talks to ship to more.

Shares of Cheniere jumped as much as 5 percent to $49.50 on Friday to their highest since February, and the stock has more than doubled since Cheniere’s Sabine Pass terminal first opened in February 2016. Shares closed up 3.3 percent to $48.68.

Since the shale boom in the U.S. a decade ago, energy companies have been building export facilities, with as much as 6 billion cubic feet per day of capacity due by the end of 2018.

“In the longer term, the deal paves the way for a second wave of investment in U.S. LNG,” said Massimo Di-Odoardo, Head of global gas and LNG research at natural resources consultancy Wood Mackenzie.

“Developers will now be able to target Chinese buyers directly, potentially supporting project financing. It could also support direct Chinese investment into liquefaction and upstream developments on U.S. soil,” he said.

Those companies include Dominion Resources Inc, Kinder Morgan Inc, Sempra Energy and Freeport LNG, which are building LNG export terminals, and Exxon Mobil Corp, Veresen Inc, Venture Global LNG and Tellurian Inc, which hope to build new export terminals.

Under the plan, which falls under the framework of the U.S.-China Comprehensive Economic Dialogue, Chinese companies can now negotiate long-term contracts to source LNG from U.S. suppliers, the U.S. Commerce Department said.

“We are happy for all support in moving forward with U.S. LNG exports...We view this announcement as a step forward in improving the balance of trade,” said Joi Lecznar, a spokeswoman for Tellurian, which is developing the $13-$16 billion Driftwood LNG export facility in Louisiana, expected to enter service in 2022.

Until now, Chinese buyers have not bought long-term LNG supplies from the U.S. directly.

China, however, has bought U.S. LNG through short-term, or spot, deals. The only long-term contracts it has for U.S. LNG are with companies, like Royal Dutch Shell PLC, which themselves have agreements to buy gas from Cheniere’s Sabine Pass or other U.S. export terminals.

Sabine Pass in Louisiana entered service in February 2016, making it the first and only big LNG export facility in the lower 48 U.S. states. The United States has been a net importer of natural gas for 60 years; that is expected to change in 2017 as a result of LNG exports.

China was the third biggest importer of U.S. LNG in 2016, having imported 17.2 billion cubic feet (bcf) on six vessels, according to federal energy data. For the first two months of 2017, China imported 30.9 bcf of gas on 10 tankers.

One billion cubic feet is enough gas for about five million U.S. homes.

By 2030, Wood Mackenzie projects Chinese LNG demand will reach 75 million tonnes per annum or 10 bcfd. That would be worth $26 billion a year at current prices ($7 per million British thermal units).

“The U.S. is keen for a slice of the pie,” Di-Odoardo said, noting that U.S. LNG accounted for about 7 percent of total LNG imports into China in March.

The Trump Administration earlier announced plans to expedite the environmental permitting process for other new facilities, such as Veresen’s Jordan Cove project on the Pacific Coast in Oregon.

Editing by Marguerita Choy