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Chinese energy company Nexen, a unit of CNOOC, is preparing to pull out of the United States amid rising trade tensions, Reuters reports, citing three unnamed sources with knowledge of the company’s plans.
Canada-based Nexen became part of CNOOC back in 2013, with the Chinese company paying over US$15 billion. The acquisition gave it a presence in the Gulf of Mexico, including a 25-percent holding in the Stampede field, operated by Hess Corp. and 21 percent in Shell’s Appomattox field. Stampede has recoverable reserves estimated at 300-350 million barrels of oil, while Appomattox holds an estimated 700 million barrels in probable oil and gas reserves.
A spokeswoman for CNOOC said, as quoted by Reuters, that the company had no plans of exiting its GOM operations but was considering selling parts of its interests there and had not scheduled any new investment in exploration in the region.
Nexen is also one of the biggest oil and gas operators in the North Sea, where it operates three fields: Buzzard, Golden Eagle, and Scott. The company also has assets in West Africa, Colombia, and Canada.
If the company does leave the United States, it will be just part of the fallout from the trade war between Washington and Beijing that President Trump started, blaming China for a hefty trade deficit between the two countries, and accusing it of using unfair trade practices. The accusations quickly led to the first round of tariffs, which China responded to in-kind.
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The latest chapter in the drama involved U.S. import tariffs on US$200 billion worth of Chinese goods, with Beijing retaliating by slapping tariffs on US$60 billion worth of products and commodities, notably including liquefied natural gas. For now, oil is off the list of goods subject to tariffs, but as tension continues to intensify it’s anyone’s guess when or if it will be added to the next list.
The latest threat of President Trump is to impose tariffs on virtually all things coming from China. China, meanwhile, is cutting import tariffs on products coming from other countries. The South China Morning Post reports that as a result of the cuts, aimed at easing the burden on local companies and consumers, the country’s overall tariff level is now 7.5 percent, compared with 9.8 percent in 2017, as per a statement from the State Council.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
One thing, however, is certain. The United States can’t win a trade war with China and will eventually be forced to back down.
If China was hindered by rising US tariffs from selling $800-billion worth of goods annually in the US, it can sell them somewhere else as its economy is far more integrated than the US economy in the global trade system supported by its silk and belt road initiative.
The US on the other hand may have to replace Chinese imports with more expensive imports from elsewhere. This will lead to rising costs for US customers, higher inflation, widening budget deficit and rising outstanding debts by at least 2.35%. In other words, the US will be the eventual loser in a full trade war with China.
In view of the above, the Trump administration will be forced to cut its losses by bringing to an end its escalating trade war with China since it could never win this war.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London