Nigeria may not profit from China’s infinite LNG thirst

Nigeria may not profit from China’s infinite LNG thirst

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China’s demand for Liquefied Natural Gas (LNG) is bound to shoot through the roof, indicating the world most populous nation’s move away from dirtier to cleaner forms of fossil fuels but Nigeria may not benefit from this demand curve. SIA Energy, a Chinese energy consulting firm estimates that demand for imported liquefied natural gas in China will more than double in size, from its current benchmark of less than 40 million tonnes per annum (mtpa) to 90 mtpa by 2030.

Dulles Wang, director for Wood Mackenzie director Dulles Wang told Canadian energy news source JWN that “between 2020 and 2040, over the next 20 years, we are expecting the gas market to expand by close to 40 percent. About two-thirds of the growth, in terms of gas demand is going to come from China.”

China is pushing away from fossil fuels and setting extremely lofty goals for decreased carbon
emissions in the very short term as well as the long term. In order to meet the country’s lofty anti-coal goals, China will need to significantly increase their imports of liquefied natural gas, as at present just about 57 percent of the country’s natural gas demand can be met with domestic supply.

“Except Chinese LNG buyers get in on Train 7, which awaits final investment decision later this year, there is no chance that Nigeria’s LNG cargoes will find their way to China. LNG projects are usually fully booked before they take off. Nigeria has very little spare capacity for the spot market”, said Victor Eromosele, former chief financial officer at Nigeria LNG Ltd.

In 2018, the buzz term in the natural gas world was the alarmist cry of “stranded assets”, with head lines shouting that overproduction of shale oil and gas in North America would leave markets over saturated with product and infrastructure soon to become obsolete thanks to the rise of more affordable wind and solar. Since then, there have been just as many think pieces and reports tempering the stranded asset panic with assurances that natural gas is here to stay.

“U.S. LNG export to China is already seriously affected by the 10 percent tariffs in effect from last year, and we expect it to continue to be so as long as the tariff is imposed”, Per Magnus Nysveen, Rystad Energy head of analysis said.

Increased China tariffs will create additional headwinds for U.S. LNG projects that are currently awaiting final investment decisions (FIDs). If LNG prices continue to linger around their current low level for an extended period of time, some of the more expensive LNG projects could struggle to offer competitive terms to buyers—and this could result in FID deferrals.

Most of these projects need to secure long-term contracts in order to get financing for their development. China is expected to be one of the biggest contributors in sponsoring new LNG projects over the coming years, and there will be a reluctance to sign new deals with US projects as long as this trade war persists.

Texas-based Cheniere Energy and China Petroleum and Chemical Corp (Sinopec) agreed late last year on a 20-year deal that would supply 2 mtpa of LNG to China starting in 2023. This deal could have been signed once the trade tensions were resolved, but due to the heightened tensions, this has not happened.

Sinopec, a latecomer to China’s LNG scene compared to domestic rivals China National Offshore Oil Corp (CNOOC) and PetroChina, has said it wants to more-than-double its
receiving capacity over the next six years to around 41 million tonnes annually, by building three new terminals along China’s east coast and expanding existing facilities.

China’s growing hydrocarbon demand, including its insatiable natural gas and LNG demand, will see more Chinese funds transferred to oil and gas players, a predicament The U.S. found itself in after 1970 when oil production in the country peaked, then started heading south, just as consumption was gathering steam from an unprecedented amount of drivers and automobiles on the road.



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