China cleared for US LNG: What are its implications for GAIL?

The Trump administration has allowed China to enter into long term LNG deals with the US. Earlier only spot cargoes were accessed by China. American supplies accounted for almost 7 percent of China’s total imports in March. The agreement between the world’s two largest economies may unleash even more American supply on a glutted global market. The deal could pave the way for a second wave of investment in U.S. LNG terminals and can demolish projections that the supply glut will end in the early 2020s.

The takeaway from the deal is that GAIL, which is stranded with a huge commitment of unsold US LNG every year, can theoretically sell its cargoes by entering into long term supply contracts with Chinese buyers. The problem however is that Chinese buyers are already over committed with long-term contracts with non-U.S. suppliers for more LNG than domestic demand requires through at least 2023.

However the latest deal can open up Chinese investments in Indian LNG terminals in a big way, sources have predicted. That will mean that GAIL will have to vie with aggressive Chinese companies in the US space as well. This may be well be good or bad news for GAIL, depending upon how we look at it.

Source: Indian PetroPlus