NEW YORK / SINGAPORE (Reuters) – US oil and gas exports. UU. They should increase over the next two years if China keeps its promises to increase energy purchases under the trade agreement between the two largest economies in the world signed on Wednesday, executives and traders said.
FILE PHOTO: A liquefied natural gas (LNG) tanker truck leaves the dock after unloading at the PetroChina receiving terminal in Dalian, Liaoning Province, China, July 16, 2018. REUTERS / Chen Aizhu / File Photo
The agreement did not specify the quantities of the products, but commits China, the world’s largest importer of oil and the second largest importer of liquefied natural gas (LNG), to buy $ 52.4 billion more of US energy supplies. UU. In the next two years.
US executives and energy analysts. UU. They welcomed the agreement after LNG and crude oil exports to China were largely depleted last year.
However, many uncertainties remain regarding the implementation of purchases and the market reaction mixed with a decline in oil trade after the signing of the agreement, but increased during the Asian morning.
China’s commitments under the agreement amount to an increase of $ 18.5 billion in 2020 and $ 33.9 billion in 2021 from a baseline of $ 9.1 billion in 2017.
The agreement “is a step in the right direction that, hopefully, will restore the burgeoning US LNG trade with China,” said Jack Fusco, executive director of Cheniere Energy Inc (LNG.A), the largest US LNG exporter. Fusco attended the ceremonial signing at the White House.
Despite China’s withdrawal of most US LNG purchases. UU. Last year, US sales UU. To other Asian countries, Europe and Latin America still led the United States to become the third largest LNG provider in the world in 2019, behind Qatar and Australia.
“It is necessary to sign new long-term LNG agreements, in addition to short-term and cash incremental trade, to achieve those ambitious numbers,” said Li Yao, founder and executive director of SIA Energy, an energy consulting firm focused on China .
“Oil too, since they are the most valuable and fastest to execute.”
(Chart: China will increase U.S. energy purchases – tmsnrt.rs/2TueBXU)
Goldman Sachs analyst predicted in a January 10 report that the agreement would mean that China could increase its crude oil imports to 500,000 barrels per day (bpd) in 2020 and 800,000 bpd in 2021. He also said that LNG imports could reach 10 million tons this year and 15 million in 2021, valued at $ 38.2 billion combined.
Traders, including Vitol SA and Trafigura AG, provisionally chartered four to eight supertankers to load US crude for China this month and next, according to data from Refinitiv, Kpler and Vortexa. The companies declined to comment.
An oil trader in Singapore said the economy favors US crude. UU., Since freight rates are falling and the increasing production of oil shale makes US crude. UU. But a second operator warned that the price window “is really complicated since it can open and close in a matter of days.”
A shale boom prompted the United States to the world’s largest producer of crude oil and natural gas, with the increase in purchases of US crude and LNG in China, before the commercial dispute broke out.
Analysts, executives of US energy trade. UU. And Asian buyers said that demand, prices and transportation costs would determine whether exports for two years reached the $ 52.4 billion mark.
“We are in an unknown territory here; Quota sales are not the norm, “said Sandy Fielden, energy analyst at financial services firm Morningstar.
Tariffs will be maintained on many products that the two countries sell to each other, including LNG. China imposed a 25% tariff on LNG, which hindered most of the activity with the United States.
“We have to have some clarity about how China is going to exclude the tariffs that are currently in force against LNG or, ultimately, will raise them before we begin to see a considerable amount of LNG from the United States coming to China , ”Said Charlie Riedl, executive director of the Center for LNG sales group.
A senior Trump administration official confirmed Wednesday that China will need to issue exemptions or rate adjustments to meet its purchase commitments.
Other concerns focus on the technical requirements of the Chinese refineries.
“Purchases would require that China buy most of US exports and China’s refineries are not set up for light oil in the US,” analysts at the research firm Capital Economics said.
China’s share of total US crude exports UU. It fell from more than 20% in the first half of 2018 before the trade war to almost 6% in the first half of 2019.
The United States exported about $ 5.4 billion of crude to China in 2018, but the value of those shipments fell to only $ 2.6 billion in 2019 until October, according to data from the US Census Bureau. UU. And the Energy Information Administration.
“This is a good first step in removing barriers with one of our most critical business partners,” said Derrick Morgan, senior vice president of the American Fuel and Petrochemical Manufacturers (AFPM) trading group.
Reports by Devika Krishna Kumar and Scott DiSavino in New York, Shu Zhang, Chen Aizhu and Florence Tan in Singapore, Jennifer Hiller in Houston and Xu Muyu in Beijing; Edition of Richard Chang and Christian Schmollinger