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

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New Spat Between U.S. And China Could Crush $52 Billion Energy Deal

The latest escalation between the U.S. and China could compromise U.S. energy sales worth $52 billion that China pledged to make over the next few years as part of the trade deal between the two nations.

“China could be well short of its purchasing obligations for politically important agriculture products and energy goods,” energy consultancy ClearView Energy Partners told Bloomberg. “President Trump might see more political upside in scapegoating China for the spread of Covid-19 than preserving the compact.”

The terms of the so-called Phase 1 trade deal between Washington and Beijing included the addition of U.S. energy exports to China worth some $18.5 billion this year and another $33.9 billion in 2021. The additional exports span the whole spectrum of fossil fuels and their derivatives, from crude oil and liquefied natural gas to various fuels as well as coke and coal.

Now, these are under threat if the deterioration in bilateral relations--over the coronavirus outbreak and Hong Kong--continues. What’s more, China would likely be hard-pressed to import all the $18.5 billion worth of energy supplies agreed for this year: based on customs data seen by Bloomberg, in the 12 months to this April, China’s imports of energy commodities from the U.S. were worth a meager $3.6 billion, including coal, oil, and petroleum coke, among others.

With congressmen insisting that Trump sanctions China for its new national security law for Hong Kong and with China threatening to retaliate against sanctions, the chances are that even if the situation somehow de-escalates, it would be difficult for China to by more than $15 billion worth of U.S. energy commodities this year. Its demand for energy is improving after the lockdown, but it may not be growing fast enough for such a surge in energy imports.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on May 29 2020 said:
    The intensifying anti-China rhetoric in the United States and direct attacks on China by President Trump mean that he is preparing to break the terms of the so-called Phase 1 trade deal between the two countries reached in December 2019 and resume the trade war immediately after the US exits the lockdown. He will not, however, fare better than the previous time since the US economy will emerge from the lockdown so weakened that it won’t be fit enough to resume the trade war. By exiting the lockdown much earlier, China has stolen a march on the US economy.

    A resumption of the trade war would scupper a $52 bn energy deal reached between the two countries under the terms of Phase 1. Particularly hit would be US LNG projects which depend on Chinese finance and long-term contracts with China.

    If, however, President Trump resumes the trade war and tries to push China into a corner, China may not this time hesitate to impose an embargo on the supply of rare earth minerals to the United States. That could potentially cripple large swathes of US industry from smartphones, turbines, lasers, missiles, advanced weapon sensors, stealth technology and jamming technology to name but a few. By the time the United States has found alternative supplies, the damage would have been done.

    And while President Trump might see some political upside in scapegoating China for the alleged spread of the coronavirus, such upside will never match the huge downside to the US economy.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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