Caixin
Jan 17, 2020 05:54 AM
ECONOMY

China Imports of U.S. Crude, LNG Set to Surge Under Trade Deal

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The trade deal between China and the U.S. is expected to increase China’s purchases of American crude oil by more than five-fold over the next two years, Goldman Sachs estimated.

Crude oil and liquefied natural gas (LNG) will be the major part of Chinese purchases from the U.S. to be expanded under the trade deal, analysts said. China agreed to buy an additional $200 billion of American goods and services over the next two years, including $52.4 billion of energy products, as part of the trade deal signed Wednesday to pause a nearly two-year trade war.

Analysts said the main part of the increased purchases of energy will be made up of crude oil and LNG, followed by chemicals and coal.

Goldman Sachs predicted that China would increase its buying of U.S. crude to 25 million tons this year and further to 40 million tons in 2021 to fulfill the commitments. Chinese imports of American LNG will grow to 10 million tons this year and 15 million tons next year, the investment bank said.

China’s LNG buying from the U.S. has plummeted since the fall of 2018 after the country imposed a 10% punitive tariff on U.S. LNG in retaliation for American levies. The tax was increased to 25% in May last year as tensions escalated.

China’s imports of U.S. LNG fell sharply since the fourth quarter of 2018, despite a national clean-energy push to contain air pollution. According to S&P Global Platts, China’s imports of U.S. natural gas in the winter of 2018 dropped to 20.4 billion cubic feet from 87 billion cubic feet the preceding winter.

Data from the General Administration of Customs showed that China’s imports of U.S. LNG were zero in October and December 2018. In the first 11 months this year, the imports amounted to 268,000 tons, representing 0.4% of China’s total LNG imports.

Chinese importers’ appetite for U.S. crude oil weakened amid the trade war, although no punitive tariff was imposed. During the last three months 2018, China imported only 138,000 tons of American crude in November, turning around a surging trend of purchases since 2015. In the first nine months of 2018, China imported 12.1 million tons of U.S. crude, up 156% from the previous year. As of November this year, China’s buying of U.S oil totaled only 6.35 million tons, or 1.4% of total oil imports.

Liang Ming, a trade expert at the Ministry of Commerce, said China as the world’s largest oil and natural gas importer has the capacity to accommodate more purchases from the U.S. Oil and gas trade between the two countries was on a rising trend until the trade frictions escalated in 2018, Liang said.

Compared with imports from Australia and Qatar, LNG from the U.S. often costs Chinese importers less, reflecting lower prices, said Dong Xiucheng, an international trade professor at the University of International Business and Economics in Beijing.

But distance and higher transportation costs make American crude oil less competitive than suppliers in the Mideast to Chinese customers, said an oil industry source.

Contact reporter Han Wei (weihan@caixin.com)

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