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By Gary McWilliams and Henning Gloystein
HOUSTON/SINGAPORE, Oct 17 (Reuters) - In the middle of aSino-U.S. trade war, the world's largest publicly traded oil andgas company is turning toward Beijing for business at a timewhen most of Corporate America is looking elsewhere to avoid thethreat of tariffs.
Exxon Mobil Corp is placing big bets on China'ssoaring liquefied natural gas (LNG) demand, couplingmulti-billion dollar production projects around the world withits first mainland storage and distribution outlet.
Its gas strategy is moving on two tracks: expanding outputof the super-cooled gas in places such as Papua New Guinea andMozambique, and creating demand for those supplies in China byopening Exxon's first import and storage hub, according to anExxon manager and people briefed on the company's plans.
That combination "will guarantee us a steady outlet for lotsof our LNG for decades," said the Exxon manager who was notauthorized to discuss the project and spoke on condition ofanonymity. One of the company's top policy goals this year, themanager said, is building its Chinese client roster.
"China's natural gas demand is rising really fast, withimports soaring well over 10 percent annually at the momentbecause of the government gasification program and due to fastrising industrial demand, including in petrochemicals," theExxon manager said.
For a graphic, click https://tmsnrt.rs/2CwGQgT
An Exxon spokesperson declined to provide an executive todiscuss the company's LNG investments in China.
Years in the making, the strategy delivers an added benefit:helping Exxon sidestep a global trade war. Exxon's massive LNGprojects in Papua New Guinea and Mozambique will not incur the10 percent tariff China put on U.S. gas as part of the trade warbetween the Trump administration and Beijing.
Jason Feer, head of business intelligence at LNG tankerbrokers Poten & Partners, which tracks LNG sales, said the dealprovides "a sign that China is willing to let foreign interestsinvest in things that in the past were seen as strategic."
Exxon is among the top ranked U.S. companies that arepushing ahead in China despite the trade dispute, but it is notalone. U.S. and European car makers are opening or expandingChina plants to avoid hefty tariffs and transport costs. TeslaInc this month acquired a Shanghai site for a car andbattery-manufacturing complex.
Exxon's Asian and African LNG will offer a cost advantageover U.S. rivals' exports that face tariffs and greatertransport, while China's support for the project offers arebuttal to Trump administration complaints about the country'sclosed markets.
The decision to expand its LNG production and open an importterminal in the world's fastest growing LNG market is a step byExxon Chief Executive Darren Woods to pull the company out of anearnings rut that has left its shares flat over the past sevenyears.
TRADE WAR RISKS
Woods appeared holding discussions with Chinese Premier LiKeqiang on state-run media last month days after disclosinglocal approvals for the LNG terminal and a massive chemicalproject in Guangdong province. Since becoming CEO last year,Woods has pushed Exxon to take greater risks, including inenergy trading operations.
His timing with LNG is key. Next year, China will become theworld's largest importer of natural gas, and its LNG imports areforecast to rise 70 percent by 2020, from 38.1 million tonneslast year, estimates Beijing consultancy SIA Energy.
Exxon has not publicly named its partner in the importterminal. State-run power company Guangdong Yuedian Group saidon its website it will join the project. BP Plc is theonly other foreign oil major with a stake in a Chinese LNGterminal.
Yuedian did not respond to a request for comment.
The multi-billion dollar bets still faces risks from theSino-U.S. trade dispute. China has vowed to respond to any newtariffs by the Trump administration, which recently accusedChina of meddling in November elections and trying to recruitAmericans to spy for it. But it remains unclear what thatresponse will be and if it puts agreements like Exxon's in Chinain jeopardy.
In addition to the LNG terminal, Exxon received approval forits first wholly-owned chemical plant in China, becoming one oftwo foreign firms including Germany's BASF to gainapproval to operate such plants without a local sponsor.
The terminal and chemicals plants combined will cost about$9 billion to build, consultancy IHS Markit estimates.
For a graphic, click https://tmsnrt.rs/2wDdglt
CALL FOR NEW PROJECTS
China in 2017 embarked on a huge program to shift millionsof households and factories from coal to natural gas for powerand heating, a move to clear the smoggy skies over its cities.
That surge has injected new life into an LNG industry thatsuffered from plunging prices between 2014 and 2017, whichforced energy companies to put off liquefaction projects.
But with prices for LNG rising this year, major producershave boosted investment. In addition to Exxon, Royal Dutch ShellPLC this month gave the go-ahead to a $31 billion LNGCanada project that will export fuel primarily to China.
"Major Independent Oil Companies such as Exxon aim forlarge-scale tier one positions, and in the LNG game that isQatar, East Africa, and possibly some North American and PapuaNew Guinea projects," said Saul Kavonic, oil and gas researcherfor Credit Suisse in Sydney, Australia.
Exxon and other LNG producers also are adapting to changingbuyer behavior. In the past, LNG was dominated by long-termsupply contracts - especially with Japanese and South Koreanbuyers - that could span several decades and in which buyer andseller agree to a fixed monthly volume at a set price formula,usually priced off crude oil.
That is changing, in part because China's importers eitherdemand more contract flexibility or simply buy LNG atshort-notice in the spot market whenever they need it.
The shift away from such rigid price-supply deals is forcingproducers to trade new LNG supplies and give import terminals alarger role in encouraging spot purchases.
"LNG players are increasingly adopting an LNG portfoliomodel whereby supply projects are not directly linked to endcustomers, with over 50 percent of contracts now coming fromportfolio suppliers rather than specific projects," said CreditSuisse's Kavonic.
(Reporting by Gary McWilliams in HOUSTON and Henning Gloysteinin SINGAPORE; editing by Edward Tobin)
