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Cheniere taps China's booming natural gas market, signing first-ever US long-term LNG contract

Tom DiChristopher
Cheniere Energy has signed the first-ever long-term deal between an American natural gas exporter and China National Petroleum Corporation.

Cheniere Energy announced it has signed the first-ever long-term deal between an American natural gas exporter and a Chinese state-owned energy company, a major step forward for the U.S. gas industry.

China is the fastest growing market for liquefied natural gas, a super-cooled form of the fuel that allows it to be shipped overseas in liquid form. Earlier this week, the U.S. Energy Information projected LNG will soon dominate America's natural gas exports , which have mostly been shipped by pipe to Canada and Mexico.

China's LNG imports are booming as it aims to reduce its use of coal to generate electricity and power its massive industrial sector. The nation's reliance on coal-fired generation is a big contributor to China's notoriously poor air quality.

Energy giant China National Petroleum Corporation agreed to purchase 1.2 million tons per year from Cheniere's Sabine Pass export terminal on the Texas-Louisiana border. In 2016, China imported 26.1 million tons of LNG, up 32.6 percent from the previous year, according to IHS Fairplay.

That year, Australia supplied about half of those imports, while Persian Gulf monarchy Qatar accounted for about 20 percent of those supplies.

The two countries, the world's top LNG exporters, benefit from long-term contracts with big buyers in East Asia. Most of the gas shipped from the upstart American LNG industry has been on the short-term spot market.

"We are pleased to announce these LNG contracts with China National Petroleum Corporation, an important global energy player in one of the largest and fastest growing LNG markets worldwide," Cheniere President and CEO Jack Fusco said in a statement.

Cheniere is currently the only company operating a fully operational LNG export terminal in the Lower 48 United States. Dominion Energy 's Cove Point terminal on the Chesapeake Bay will start up commercial service next month. The Cameron LNG terminal and Freeport LNG facility are scheduled to open later this year on the Gulf Coast.

The news is also a boon to the Trump administration. The U.S. Commerce Department reached an agreement with Chinese authorities in May that cleared the way for state-owned companies to negotiate long-term contracts with U.S. LNG exporters, something Beijing had been hesitant to do.

Some market-watchers doubted the agreement would lead to actual shipments, but Cheniere's deal with CNPC moves the ball forward. A portion of shipments are scheduled to begin this year.

Louisiana Sen. Bill Cassidy cheered the announcement and its impact on the state economy on Friday.

"This is great news for working families in Louisiana," Cassidy said in a statement. "From the wellhead to the liquefaction facility, people in Louisiana will benefit from selling more American-made energy."