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China Fastest Growing LNG Importer, U.S. Share Could Grow, Report Says

China and the United States seem destined for major bilateral liquefied natural gas (LNG) trade as the U.S. shale gas boom continues unabated and China establishes itself as the world's fastest growing LNG importer, according to a report by the Brookings Institution.

China is the world's fastest growing natural gas consumer as its national government pushes programs to replace coal, Brookings said. Last year, the country's gas consumption increased by 15% and its imports grew by 28%. China's import dependence has grown from zero in 2005 to 39% last year.

U.S. LNG export capacity in 2017 reached 20 billion cubic meters (Bcm) with 2.9 Bcm going to China, accounting for 6% of China's LNG imports, according to the report.

At the end of 2017, analysts with Barclays Capital noted that China's energy commodities imports remained strong, with gas imports up 42% and oil rising 15% in 2017 compared with 2016. Total year-to-date import levels have amounted to 64 Bcm, up 27% from the 51 Bcm imported during the same period in 2016.

The Chinese government has made a push to encourage more gas use, and higher incremental demand levels "will now meet peak winter demand levels," according to Barclays. However, this "could put China in a precarious gas supply situation, depending on how winter weather unfolds. Chinese production levels have remained relatively static at about 12 Bcm over the course of the year [2017], failing to keep up with demand increases and leaving China more dependent on higher levels of imports."

Other analyst teams, such as BofA Merrill Lynch Commodity Research, have added their assessments, noting that China was "gobbling up" gas imports, boosting purchases by 60% in the first 10 months of last year. In early December, Asian spot LNG prices reached nearly $10/MMBtu, the highest since the start of 2017. China imports 21% of its gas as LNG, with more than half coming from Australia (47%) and Qatar (21%).

Two of China's other LNG sources -- Malaysia (11%) and Indonesia (7%) -- are likely to decrease their gas exports in the 2020s, opening the door for more U.S. LNG exports to China, Brookings concluded. "In addition, international pipeline supply is not enough to fill the gap," the report noted, adding that U.S. imports "suit China's economic interests and energy security."

Reports from the International Energy Agency and the U.S. Energy Information Administration (EIA) have further stoked expectations for increased U.S. LNG exports to Asian markets.

National government run anti-pollution campaigns in China are seen as primary drivers for its growing appetite for natural gas. The push for cleaner fuels to replace coal appears to be picking up steam this year in China, Brookings said.

Adding Henry Hub price-based LNG supplies to an oil-linked LNG portfolio brings more stability to the Chinese gas supplies, according to Brookings. In addition, U.S. LNG should be more competitive if global oil prices continue to rebound.

Mexico, South Korea and China were the biggest importers of U.S. LNG last year, when 1.94 Bcf/d was exported, a 500 MMcf/d increase, according to an EIA report earlier this year. The three countries represented 53% of the exports, EIA said.

China's national energy strategy includes a goal of natural gas making up 15% of the nation's energy mix by 2030. "If China's primary energy consumption reaches 5.5 billion tons coal-equivalent by 2030, natural gas consumption would reach about 650 Bcm, or 2.7 times its level in 2017,” Brookings said.

Part of China's acceleration of gas imports comes via pipelines,. Two major arteries -- Central Asian Gas Pipeline and the China-Myanmar Oil/Gas Pipeline -- bring 46% of China's gas imports, according to Brookings. Two new pipeline projects are slated to come on line within the next two years -- Siberia in 2019, and added capacity to the Central Asian line in 2020.

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