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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Big Oil Warned Trump That China Trade Deal Wouldn't Work

The American Petroleum Institute warned the Trump administration that the U.S. oil industry would be hard pressed to produce all the oil China has committed to buy under the Phase 1 trade deal signed at the end of last year, Bloomberg reports, citing a closed door meeting between API officials and the Department of Energy last month.

“The United States’ ability to expand its exports of crude oil and other liquids would likely become a binding constraint,” the API said. “Even if production is available, logistical challenges remain with marine shipping and the Panama Canal.”

China committed to buying some $18.5 billion in additional energy supplies from the United States this year and another $33.9 billion next year. The supplies range from crude oil and LNG to coal and oil products.

According to the API, the total for 2020 and 2021 translates into an additional 1 million bpd of crude oil daily, half a million bpd of oil products and 100 cargoes of liquefied natural gas. Yet U.S. oil production is projected to grow by less than 1 million bpd, the API told the DoE.

However, in its latest Short-Term Energy Outlook, the Energy Information Administration said it expected U.S. oil production to rise by 1 million bpd this year from 2019 and by another 400,000 bpd in 2021. That could be enough to meet higher Chinese demand thanks to its trade deal commitment, but it bears remembering that these are production forecasts that can change just as much as oil prices change. In short, the 1.4-million-bpd production increase is not a certainty.

Even if the oil is produced, the deal would strain the shipping industry as well, the API told the Department of Energy.

Yet there are already doubts that China will be able to make good on its commitments. For one thing, LNG imports from the U.S. are not very competitive since China has left a 25-percent tariff on these. There is also more gas going into China from Russia via the Power of Siberia pipeline. In oil, the situation is being complicated by the coronavirus outbreak that has already pressured demand and may continue to pressure it for months to come.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on February 13 2020 said:
    This should be the least among the American Petroleum Institute’s (API’s) worries about the China Trade deal.

    With President Trump tipped to be elected for four more years in the While House in the November 2020 presidential elections, there is always the possibility that he may be emboldened enough to re-start the trade war with China. After all, the trade war goes far beyond trade. It is about the new world order in the 21st century and who will emerge as the dominant power in the world.

    Despite the fact that China has committed to buy under the Phase 1 trade deal some $18.5 billion in additional energy supplies from the United States this year and another $33.9 billion next year, it may not buy US LNG unless its price matches those from Qatar, Russia and Australia and Russian piped gas through the Spirit of Siberia gas pipeline.

    As for crude oil and products, China is not only self-sufficient in refined products but is also a major exporter of refined products.

    When it comes to crude oil, China may continue to buy up to 300,000 barrels a day (b/d) from the US but would but the bulk of its oil needs from Iran, Iraq and Saudi Arabia to nurture its growing strategic and trade relations with these three countries.

    Even if China wanted to abide by the clauses of Phase 1 trade deal, the US oil industry would be hard pressed to produce all the oil China has committed to buy given the terminal state of its shale oil industry and the continuing slowdown in shale oil production.

    In 2020 the United States is projected to need to import 11.49 mbd of crude oil to cover its needs based on a projected consumption of 21.49 mbd and a production of 10 mbd.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Lee James on February 14 2020 said:
    This crude oil and NG trade deal . . . that has no real chance of being actualized . . . points up a problem with U.S. energy planning. Our administration likes to paint a picture that we sport a surplus of petroleum, ready for export. I believe it's basically chest-thumping from D.C.

    If we weren't such big consumers of oil ourselves, we might have something to thump about. We need to be realistic about the adequacy and thin margins of our nation's energy supply. All things considered, oil-dependency in our world today, is not a good place to be. We need any an all alternatives to oil that we can muster.

    The lack of a sound USA energy plan is gonna hurt.

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