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Trade deal opens new markets to US LNG

The Trans-Pacific Partnership (TPP) free trade deal was signed on 5 October, making it easier for US LNG to expand to new markets

The US and 11 other countries sealed the long-negotiated Trans-Pacific Partnership (TPP) free trade deal on 5 October, making it easier for US liquefied natural gas exporters (LNG) to access major new markets, especially Japan.

When evaluating proposed LNG export plants, the Department of Energy draws a distinction between those that plan to ship gas to countries that have free-trade agreements (FTA) with the US and those that don’t. For those that don’t, a longer, more complex and costlier permitting process is required, which has been a source of irritation and complaint from the burgeoning natural gas export industry.

“TPP will address current barriers to global markets,” Stefan Selig, a senior official at the Department of Commerce said in Washington DC. “Enacting the most expansive free-trade zone in history will satisfy the legal requirement of natural gas exports, while allowing LNG exporters to access more than 60% of global GDP,” he said.

TPP would make it much easier for US companies to export oil and gas equipment to the parties of the trade deal

Japan, the world’s largest LNG importer, is the biggest prize in the TPP deal for gas exporters. The country has been keen to find ways to access cheaper US gas, and US exporters have been equally enthusiastic about cracking open the Japanese market. It was one of the key issues that drew Japan into the TPP negotiations, which required it to make some painful concessions on key protected domestic industries.

Japanese companies Mitsui and Mitsubishi have already signed supply deals with the Sempra LNG plant totaling 8m metric tons/year (mt/y) starting from 2018. While Osaka Gas and Toshiba have signed agreements with Freeport LNG to supply a total of 6.6m mt/y, also starting from 2018. The combined 14.6m mt/y is 16% of the 89.2m mt of LNG Japan imported in 2014.

Further deals, though, could be slower to come now than many thought when TPP negotiations started. With Japan’s nuclear reactors starting to come back online, the demand outlook has dimmed and grown more uncertain, meaning buyers could wait for more clarity before locking in more long-term supply. Crashing LNG prices in northeast Asia also means that Henry-Hub-linked US LNG has lost much of the cost advantage that had made it so attractive to Japanese buyers.

The US’ first LNG exports are expected around the turn of the year, when Cheniere’s Sabine Pass plant starts shipping gas, though exports won’t really start to ramp up until 2018 when a number of projects are scheduled to start up.

On top of LNG exports, Selig said TPP would make it much easier for US companies to export oil and gas equipment to the parties of the trade deal, which includes some major oil and gas players such as Australia, Malaysia, Peru, Singapore and Vietnam.

“We look forward to the US becoming a major player on the global natural gas market and the US government is prepared to play a real supportive role here,” Selig said.

The trade deal will now head to Congress, where the House and Senate have 90 days to review the terms of the agreement. There, the deals many opponents, including many environmental groups that oppose making it easier to export LNG, will put pressure on legislators to kill the agreement. It is, however, expected to survive congressional review.

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