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THE RISK IN US-CHINA LNG TRADE: American LNG companies are scoring more and more long-term agreements with Chinese buyers, a development that helps advance financing of pending projects but one that some warn could leave exporters more vulnerable to getting mixed up in an ever-diminishing relationship between the U.S. and China.
More contracts: Chinese buyers, such as Sinopec and PetroChina, have entered more than a dozen long-term agreements with U.S. LNG companies over the last 18 months to contract for supplies from current and existing facilities.
A supply and purchase agreement between China Gas and Venture Global helped pave the way for the U.S. LNG producer to reach a final investment decision this week at Phase Two of its Plaquemines terminal.
The pace of new SPAs represents a change from previous years prior, where exports to China were significant but took place overwhelmingly on the open market.
Long-term deals between China and the U.S. were effectively limited to a small deal between PetroChina and Cheniere, noted Alex Munton, who oversees LNG and global gas markets for Rapidan Energy Group.
China has bounced around in recent years from being the no. 3 importer of U.S. LNG to as low as no. 5. Last year was the game changer with the war, when more shipments went to Europe, where prices were higher, than Asian markets.
“As a function of fundamentals, but also as a function of kind of politics and trade war, U.S. LNG exports have oscillated into China because very little has been traded on a contract basis,” Munton told Jeremy.
“Chinese companies that had for a long time been very wary of signing deals with U.S. developers and U.S. projects for the very reason of the sort of political risks involved, decided that it was time to actually put those risks aside and start signing deals,” Munton said.
Where risks lie: U.S.-China relations are constantly coming under strain as lawmakers in both parties demand a rewrite of the trade relationship. This could mean suppliers end up getting caught in the middle, whether via import restrictions or tariffs, which U.S. LNG faced during the Trump administration.
That outcome could pose special problems for U.S. LNG companies. They need long-term agreements to justify new construction or expansions. Chinese buyers are providing those, but those could be undermined by the consequences of a trade war.
If long-term contracts are threatened, shortened, or canceled, it could risk the financing of future construction.
The protectionist bent: The above scenario contemplates import restrictions from the China side of things, but there’s an existing constituency among Democrats and industrial gas users to impose export restrictions on U.S. gas — not just to China but to others.
Moreover, Republicans, although they are advancing measures designed to expand exports of LNG, are increasingly hawkish on China. That hawkishness extends to energy exports: The party advanced a prohibition against sales of SPR crude oil to China earlier this year, and Sen. Marco Rubio reintroduced legislation that would ban petroleum exports to China.
Gas prices are low now, much lower than their peak last year, which drove the campaign to increase exports to allies. A reversal of that price dynamic could make the protectionist position more compelling, Munton said.
“If prices are high, not only why are we exporting lots of gas, but why are we exporting to a sort of a strategic foe? That sort of argument has a lot more potency,” he said.
Paul Bledsoe, a former Clinton White House climate aide and strategic adviser at the Progressive Policy Institute who has been advocating expanded LNG exports, dismissed the impulse to limit exports and said more LNG shipments in the hands of China are a tool for achieving U.S. climate goals and limiting Russian influence.
“China’s imports are gonna quadruple over the next 20 years,” he said. “America should get those economic and trade benefits, not the Kremlin and Putin’s war machine.”
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
BREAKING – GREEN GROUPS SUE TO STOP WILLOW PROJECT: Environmental groups sued today stop ConocoPhillips’s Willow oil project in Alaska, approved by the Interior Department on Monday.
The groups are asking for the court to toss the record of decision approving the project and to consider alternatives that could have reduced greenhouse gas emissions and on-the-ground effects.
The complaint was filed by a number of groups, including Greenpeace and the Natural Resources Defense Council, in the U.S. District Court for the District of Alaska.
Trustees for Alaska filed a separate legal challenge on behalf of Sovereign Iñupiat for a Living Arctic.
As Daily on Energy noted yesterday, Monday’s approval was just the beginning of the fight over drilling in the western arctic.
EPA FINALIZES GOOD NEIGHBOR PLAN: The Environmental Protection Agency finalized new regulations today to limit downwind smog pollution from coal-fired power plants and other industrial facilities under the Clean Air Act’s “good neighbor” provision.
Beginning this year, electricity generators will have to comply with more stringent nitrogen oxide control levels, and further reductions will be phased in over several years starting in 2024. The new rule seeks to help enable compliance by allowing generators to participate in a modified emissions trading program, an EPA official said.
The rule’s requirements for industrial facilities take effect beginning in 2026 and apply to new and existing facilities in 20 states. Covered facilities include iron and steel mills, as well as cement, paper, and glass manufacturing facilities.
Administrator Michael Regan said the rule was about fairness: “Some states have done all they can do to control ozone pollution, and their counterparts that are up-wind are being asked to do the same, to be respectful of those state boundaries and not push pollution across state boundaries,” he said.
Reliability: Industry groups representing coal mining and the coal-fired power sector warn the good neighbor rule and the broader suite of rules the Biden EPA has introduced or finalized affecting coal will create more holes in the grid by driving further premature retirements and worsen reliability.
Grid regulators have similarly sounded the alarm on traditional resources retirements for reducing generating capacity and making the grid more vulnerable to blackouts.
Regan said the agency was sensitive to reliability to concerns and made changes from its proposed rule to add more flexibility via the emissions trading program to make compliance easier.
The final rule “enhances the availability of allowances during a period of relatively rapid fleet transition by allowing power plant owners and operators to ‘bank’ allowances at a higher level through 2030,” according to a summary.
Regan also brought up the new memorandum of understanding it signed with the Department of Energy providing for more collaboration between the two to ensure the continued reliability of the bulk power system “as each agency implements its respective statutory obligations” — i.e. limit pollution and help hasten a transition to greener energy sources.
PUTIN CLAIMS NORD STREAM BLASTS CARRIED OUT AT ‘STATE LEVEL’: Russian President Vladimir Putin claimed yesterday that the Nord Stream gas pipeline explosions were carried out on a “state level,” dismissing recent reports that a pro-Ukrainian group was responsible for the blasts.
Putin dismissed the reports from the New York Times and from German news outlets including Die Zeit as “complete nonsense.”
“One should always look for those who are interested. And who is interested? Theoretically, of course, the United States is interested,” Putin told a state broadcaster. “An explosion of this kind, of this power, at this depth can only be carried out by specialists, and supported by the full power of the state, which has certain technologies,” he added.
The White House has dismissed allegations of blame as “utterly false and complete fiction.”
A mysterious object: Putin also said yesterday that a ship rented by state-owned energy giant Gazprom had found an antenna-like object on the seabed some 19 miles from the explosion sites, which he suggested could have been placed there to detonate an explosive device.
Denmark had also been investigating an unknown “object” located near one of the pipelines, according to a letter reviewed by Reuters, but concluded that the object did “not pose any immediate security threat and that there is no immediate threat to marine traffic or people in the area.” Read more here.
OHIO SUES NORFOLK SOUTHERN OVER EAST PALESTINE DERAILMENT: Ohio filed a federal lawsuit against freight operator Norfolk Southern over the East Palestine train derailment and the subsequent release of toxic chemicals into the town’s air and water.
Ohio Attorney General Dave Yost filed the 58-count complaint in the U.S. District Court for the Northern District of Ohio and accused Norfolk Southern of violating a range of federal and state laws, including negligence, trespassing, and multiple breaches of the Comprehensive Environmental Response, Compensation, and Liability Act.
The state is seeking damages for prior and future costs related to the derailment, civil penalties, and a declaratory judgment from the court that Norfolk Southern was responsible for the catastrophe.
Read more from Breanne here.
LAWMAKERS BRING YEAR-ROUND E15 BACK TO THE QUEUE: Sens. Deb Fischer and Amy Klobuchar reintroduced legislation from the previous Congress that would enable the year-round sale of E15 nationwide.
The midwestern lawmakers’ bipartisan Consumer and Fuel Retailer Choice Act of 2023 would extend the Reid vapor pressure volatility waiver to fuel that is more than 10% ethanol. Current law effectively extends the waiver only to E10, the most common retail gasoline blend, and E15 is restricted during the summer months to limit ozone pollution.
Fischer and others were quick to market ethanol and E15 as a cheaper alternative to E10 and non-blended gasoline when oil prices spiked after the war in Ukraine began.
E15 is a big priority for the Midwest, where most of the nation’s corn is grown. Co-sponsors include delegations from Iowa, Wisconsin, and Illinois.
OIL FALLS BACK INTO DOE’S SPR REFILL RANGE: U.S. crude oil is down again today, falling some 16% from its March peak.
WTI closed above $80 on March 6 and is trading down in the $67 range this morning, bringing the benchmark well into the price range at which the Biden administration hopes to begin acquiring oil to refill the Strategic Petroleum Reserve.
Next steps on the acquisition plan are unclear, however, after the Department of Energy rejected offers related to its December “pilot” solicitation to begin refilling the reserve.
The department is now also preeoccupied with carrying out a mandatory sale of oil from the reserve as it tries to simultaneously refill it, something administration officials sought to avoid.
HR 1 ADVANCES FOR HOUSE CONSIDERATION: House Majority Leader Steve Scalise introduced the Republican’s sweeping new energy bill yesterday, advancing it to the full House floor to be considered during the last week of March.
H.R. 1, or the “Lower Energy Costs Act,” includes a number of provisions aimed at countering the Biden administration’s energy agenda and facilitating greater domestic fossil fuel production.
As Breanne reported last week, the legislation includes a number of bills meant to speed up the federal permitting process, boost U.S. liquefied natural gas exports, and a lot more.
“This bill counters President Biden’s attack on our domestic energy, and includes permitting reforms that will speed construction for major infrastructure projects across the country,” House Speaker Kevin McCarthy said in a statement.
The Rundown
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Associated Press EU closer to ending US trade spat, moves on Green Deal funds
Bloomberg Exxon’s Texas plant is likely the last major US refinery project
Calendar
TUESDAY | MARCH 28
10:00 a.m. 2123 Rayburn. The House Energy and Commerce Subcommittee on Environment, Manufacturing, and Critical Materials will hold a hearing on the government’s response efforts to the East Palestine train derailment.
