U.S. Energy Industry Looks for Clarity in China Trade Deal

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The Cheniere Energy terminal in Corpus Christi, Texas, for exports of liquefied natural gas. Among American gas producers, Cheniere may have the most to gain from a renewed opening to China. Credit…

Oil and gas companies may see an export revival from the accord, but they seek commitments that tariffs will be dropped.

(New York Times 1/16/19)

HOUSTON — The American energy industry offered cautious praise Wednesday for the signing of an initial trade deal with China, but executives expressed disappointment that it seemed to lack a commitment to remove Chinese tariffs that have hampered their sales over the last two years.

As part of the agreement, China pledged to buy tens of billions of dollars of American fuels of all kinds over this year and next. But the muted reaction was rooted in the perception that both the Trump administration and China are still maneuvering for advantage.

Most of the purchases China committed to making are in 2021, so any recurrence of tensions could undercut the deal. More important, executives noted, China made no explicit pledge to eliminate tariffs on energy imports — 5 percent on crude oil and 25 percent on liquefied natural gas — which they viewed as a response to the administration’s refusal to remove tariffs on Chinese goods.

“There’s reason to be optimistic even though the tariffs on the Chinese side have not been lifted,” said Charlie Riedl, executive director of the Center for Liquefied Natural Gas, a trade group. But when asked if the industry could sell natural gas to China with the existing tariff, he responded, “We haven’t so far.”

American energy exports to China totaled $8 billion in 2017, but slumped sharply under the weight of tit-for-tat tariffs in 2018. Wednesday’s accord specified that China would surpass its 2017 purchases by $18.5 billion this year and $33.9 billion next year.

“If the tariffs stay in place, this is not a significant step forward because U.S. exports would still be shackled,” said David L. Goldwyn, the senior State Department energy diplomat in the first Obama administration.

Answering questions at a briefing Wednesday, Robert Lighthizer, the United States trade representative, did not directly address whether the tariffs would be lifted at least for the goods specified by the agreement.

“China has agreed to make purchases,” he said. “To make purchases, they are granting exclusions where they want to make them.” But he added, “We don’t have a specific provision that says they will do this or that.”

On paper, China and the United States should fit nicely as energy trading partners. China is a fast-growing energy market, while the United States is a fast-growing energy exporter. China is trying to clean up the air of its polluted cities by burning less coal, and the United States is producing an enormous surplus of cleaner-burning natural gas. So any sign of an improvement in trade relations was viewed positively by executives.

Jack Fusco, chief executive of Cheniere Energy, the liquefied natural gas exporter with perhaps the most to gain from the deal, characterized it as “a step in the right direction that will hopefully restore the burgeoning U.S. L.N.G. trade with China.”

He was among several energy executives in the audience at the signing ceremony on Wednesday in Washington, and he was mentioned by name in President Trump’s remarks.

Mike Sommers, president of the American Petroleum Institute, the main oil industry lobby in Washington, stressed that both United States tariffs on imports of industrial components vital to the oil and gas industry and Chinese retaliatory tariffs on American energy exports should be removed.

“De-escalation of trade tensions is welcome news,” he said. “We encourage the administration to stay at the negotiating table until the U.S.-China marketplace for energy trade is fully restored and all remaining tariffs are lifted.”

Before the trade war, China was the second-largest market for American oil exports, after Canada. As the Chinese market shrunk, American companies were able to divert oil cargoes to other countries, and petroleum exports continued to expand.

China represents an even bigger opportunity for the natural gas export industry. The United States began large-scale exports of liquefied natural gas in 2018, and export terminals are rising along the Gulf of Mexico. Dozens of new terminals may be built if a long-term Chinese market can be assured.

American producers of liquefied natural gas can use all the help they can get as a glut in the global market is damping prices and profits. And the Chinese government aims to meet 15 percent of its total energy demand with gas by 2030, up from the current 10 percent.

But because of a slowing economy, China has not reached its full potential as a buyer of all the liquefied natural gas that has come on the market from Australia, the United States and Qatar. Demand was so soft in China and the rest of Asia last year that producers were forced to redirect sales to Europe at steep discounts.

Annual growth in China’s gas demand fell to 9 percent last year from 17 percent in 2018, according to Wood Mackenzie, the energy consultancy. Experts expect even slower growth in demand this year unless a pickup in trade delivers a significant economic lift.

Mr. Goldwyn, the former State Department official, questioned whether China could even absorb the energy purchases specified in the trade accord under current economic conditions.

At the same time, China’s domestic gas production is increasing, and a Russian pipeline recently began delivering bountiful and cheap gas to northern China.

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