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Feeding China's Natural Gas Addiction

American Gas Goes Global

Written by Keith Kohl
Posted August 26, 2016

It finally happened, just like we knew it would.

Earlier this week, the first tanker carrying U.S. LNG quietly docked at Yantian, China.

You may have missed it, especially considering that the market is so fixated on crude oil right now.

Fortunately, we’ve been covering these U.S. LNG exports for years, patiently waiting for American gas to go global. So you can understand our excitement to hear about the latest news.

You see, not only does it bring back the idea of the U.S. as a major commodities exporter, but finally being able to tap into China’s growing natural gas addiction is a huge step.

Truth is, it's been heading that way for a long time...

China’s Trouble with Smog

China has focused so much attention on energy reforms in recent years, and it’s easy to see why.

Just imagine if your morning commute looked like this:

iamge1smog825

And yet, this has been a serious problem for years... You see, China has the largest portion of the world's population, coming in at more than 1.3 billion people.

Every last one of them will drive the country’s energy demand going forward — and right now, most of that energy comes from coal!

Coal accounts nearly two-thirds of Chinese energy production, according to the Energy Information Administration.

Even though coal’s not the only reason China’s largest cities are covered in smog keep in mind that there’s a growing number of drivers, too, that are pushing its oil consumption higher — it's one of the biggest problems facing the country today.

The country invested $103 billion in renewable technology last year, making China the world's biggest supporter of the clean energies. It's also poised to have the fastest growth in nuclear capacity.

Still, it's natural gas that's having the most immediate effect on China's energy portfolio.

During the first six months of 2016, natural gas demand increased 9.8%, reaching 99.5 billion cubic meters. And although domestic production increased 2.9%, imports still increased a much more impressive 21.2%.

And that's not the half of it...

Global Perspective

China's Energy Development Strategy Action Plan (2014–2020) laid out plans to increase natural gas's share of the country's energy portfolio to 10% by 2020.

That may not sound ambitious, but remember the massive amount of energy the country consumes on a daily basis.

Ramping up natural gas to that level will require China to import between 190 and 270 billion cubic meters per year.

To put that in perspective, only 53 billion cubic meters were imported in 2015.

So what does all this mean for U.S. LNG? Well, even though a good chunk of China's gas imports will come from Russia, the United States has already made the first step towards being a regular supplier.

Of course, it helps that China isn't the only country interested in U.S. natural gas.

Global natural gas consumption is expected to increase by about 1.3% per year, according to the Energy Information Administration.

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Click Image to Enlarge

Look, we know that renewables will be among the fastest-growing energy sources over the next few decades... keep in mind that they have a lot of catching up to do.

And for every kilowatt of power they can't cover, you can bet that natural gas will be picking up the slack.

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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