Gas agreements between the United States and China defy tensions between world powers
Gas agreements between the United States and China defy tensions between world powers

Gas agreements between the United States and China defy tensions between world powers

China’s voracious appetite for natural gas has triggered a wave of agreements with US exporters of fuel, boosting energy trade between the world’s two largest economies, even as their relations become more strained.

The latest sale was announced Monday, when Venture Global LNG, a company building a pair of liquefied natural gas export facilities in Louisiana, said it had agreed two contracts to ship $ 3.5 million. tons per year of fuel to state-owned China National Offshore Oil Corporation, the country’s largest LNG importer.

The Cnooc agreements bring the number of major contracts signed between US exporters and Chinese customers up to seven since October. Some of the contracts have to last decades. China is poised to surpass Japan as the world’s largest LNG buyer this year, analysts say, while the US will jump Australia and Qatar into LNG export capacity next year, according to its Energy Information Administration.

Tensions between Washington and Beijing have escalated over everything from China’s persecution of Uighurs in Xinjiang and the repression of the pro-democracy movement in Hong Kong to its military activity near Taiwan. China, meanwhile, has accused the United States of behaving like a hegemon and trying to create a cold war between the powers.

Gas sales, on the other hand, are another sign of ties between the two powers on energy and climate issues. The two governments also defied expectations of reaching an agreement on tackling climate change at last month’s COP26 summit in Glasgow and have negotiated a joint release of strategic oil stocks to cool prices.

“Relations between the United States and China are in many respects at a very low point,” said Jason Bordoff, dean of Columbia Climate School and a former energy official under President Barack Obama. “But energy and climate are a potential bright spot where there can be more cooperation despite the tension and conflict.”

Venture Global had already signed agreements in November to send 4 million. tonnes per year of LNG to China’s state-owned oil and gas group Sinopec for 20 years, together with shorter-term agreements totaling DKK 3.5 million. tonnes with its trading subsidiary Unipec. One of the new contracts with Cnooc is also for 20 years.

Mike Sabel, CEO of Venture Global, said China’s efforts to reduce carbon emissions by replacing coal with natural gas in power plants were behind the agreements. The Sinopec agreement had been timed to deliver a good message before the climate summit, he added.

“China is moving faster right now with these new agreements than the rest of Asia,” Sabel told the Financial Times. “But when we announce these agreements, the rest of the countries will do it [respond] – and responds – because otherwise China will gain an advantage. “

He added: “We are in this extraordinary moment where the world really needs American LNG and American LNG is the fastest that can get online.”

Cheniere Energy, the largest US LNG exporter, is targeting China to support growth. The Houston-based company has recently secured deals with buyers, including state-subsidized Sinochem, totaling $ 3 million. tons per year.

“We believe Asia is the growth driver of our industry for LNG demand in the coming decades, and China is the largest single player in it,” said Anatol Feygin, Cheniere’s chief commercial officer. told FT in October.

Dealmaking and gas flows are rising after stalling under the Trump administration as China imposed tariffs on U.S. gas in retaliation for tariffs on its exports. Chinese companies have sought secure supplies of gas in the midst of an economically damaging situation power crunch and a global gas price jump.

The United States was the second-largest supplier of LNG to China in the first nine months of this year, according to trade data compiled by Refinitiv. It was only behind Australia – another country whose relations with Beijing have deteriorated.

“China gets half of its LNG from Australia and the United States – it can not make Beijing happy,” said Nikos Tsafos, head of energy and geopolitics at the Center for Strategic and International Studies, a think tank in Washington. “But they’re going where the projects are, and that’s where they are right now.”

Chinese President Xi Jinping told his US counterpart Joe Biden that he wanted to “strengthen cooperation on natural gas” during the leaders’ first meeting last month, according to a summary of the call by China’s foreign ministry, a sign that Beijing sees land as central to its fuel supply.

Still, sales of gas abroad have become more politically sensitive in the United States, following a recent rally taking domestic prices above $ 6 per gallon. million British thermal units, the highest since 2008.

Elizabeth Warren, an influential Democratic senator, sent a letter to top executives of 11 major natural gas producers, including ExxonMobil and BP, asking if companies had “considered cutting, suspending or stopping natural gas exports to help ease the rising domestic prices “.

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Some gas managers have pushed backdescribing LNG exports as an opportunity for the United States to help other countries withdraw coal-fired power plants in favor of natural gas plants.

Columbia Climate Schools Bordoff said any move to curb exports would undermine confidence in America as a “reliable energy supplier.” He drew a parallel to the concerns of European countries about their dependence on Russian supplies, which “have a political and geopolitical dimension to them”.

The booming international gas trade is also politically awkward for the Biden administration as it pushes to move the economy away from fossil fuels. While natural gas emits less carbon dioxide than coal when burned, it is still a major source of greenhouse gas emissions.

CSIS’s Tsafos said it reflected the “messy reality of the energy transition” – that the world remains heavily dependent on fossil fuels and that the United States is a major producer of oil and gas.

“The fact is, this makes both sides a little uncomfortable,” he said.

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