China tariffs on LNG, oil aim at U.S. energy dominance agenda

CNBC

Scott DiSavino and Chen Aizhu

NEW YORK/BEIJING, Aug 3 (Reuters) – China’s proposed tariffs on U.S. liquefied natural gas and crude oil exports opens a new front in the trade war between the two countries, at a time when the White House is trumpeting growing U.S. energy export prowess.

China included LNG for the first time in its list of proposed tariffs on Friday, the same day that its biggest U.S. crude oil buyer, Sinopec, suspended U.S. crude oil imports due to the dispute, according to three sources familiar with the situation.

On Friday, China announced retaliatory tariffs on $60 billion worth of U.S. goods, and warned of further measures, signaling it will not back down in a protracted trade war with Washington.

That could cast a shadow over U.S. President Donald Trump’s energy dominance ambitions. The administration has repeatedly said it is eager to expand fossil fuel supplies to global allies, while Washington is rolling back domestic regulations to encourage more oil and gas production.

The juxtaposition here is clear: it is hard to become an energy superpower when one of the biggest energy consumers in the world is raising barriers to consume that energy. It makes it very difficult,” said Michael Cohen, head of energy markets research at Barclays.

The United States is the world’s largest exporter of fuels such as gasoline and diesel, and is poised to become one of the largest exporters of LNG by 2019. U.S. LNG exports were worth $3.3 billion in 2017. China is the world’s biggest crude oil importer.

China had curtailed its imports of U.S. LNG over the last two months, even before its formal inclusion in the list of potential tariffs. It had also become the largest buyer of U.S. crude oil outside of Canada, but Kpler, which tracks worldwide oil shipments, shows crude cargoes to China have also dropped off in recent months.

It comes at a time when the United States has several large-scale LNG export facilities under construction, and after Trump’s late 2017 trip to China that included executives from U.S. LNG companies.

China became the world’s second-biggest LNG importer in 2017, as it buys more gas in order to wean the country off dirty coal to reduce pollution.

“This will not affect the trade but will simply make gas more expensive to Chinese consumers,” said Charif Souki, chairman of Tellurian Inc, one of several companies seeking to build a new LNG export terminal.

China, which purchased almost 14 percent of all U.S. LNG shipped between February 2016 and May 2018, has taken delivery from just one vessel that left the United States in June and none so far in July, compared with 17 in the first five months of the year.

“The U.S. gas industry will be much harder hit by this as China imports only a small volume whereas U.S. suppliers see China as a major future market,” said Lin Boqiang, professor on energy studies at Xiamen University in China.

(For an interactive graphic on U.S. LNG shipments to China, see https://tmsnrt.rs/2n9bQKn)

Meanwhile, according to Kpler, crude exports to China dropped to an estimated 226,000 barrels per day (bpd) in July, after reaching a record 445,000 bpd in March. Sinopec, through its Unipec trading arm, is the largest buyer of U.S. crude.

China would likely hike purchases from Saudi Arabia, Russia, the United Arab Emirates and Iraq if the tariffs slowed U.S. flows, said Neil Atkinson, head of the oil industry and markets division at the International Energy Agency.

There will be “others who will be offering barrels to China, so it could find itself able to replace lost volumes from the U.S.,” Atkinson said.

With LNG demand expected to skyrocket over the next 12 to 18 months, there are still some two dozen firms seeking to build new LNG export terminals in the United States and tariffs may limit their ability to secure sufficient buyers to finance their proposed projects.

“Cheniere continues to see China as an important growth market and LNG as a win-win between the United States and China,” said Eben Burnham-Snyder, a spokesman at Cheniere Energy Inc, which owns one of the two LNG export terminals currently operating in the United States. He added they do not see tariffs as productive.

One project being developed is in Alaska, which would carry natural gas through an 800-mile (1,287 km) pipeline across the state to a terminal that would convert it to LNG to take it to China.

The $43 billion project is still in development, and the Alaska Gasline Development Corp said on Friday that it believes the “current trade tensions between the United States and China will be resolved well in advance of Alaska LNG exports to China.”

(Reporting by Scott DiSavino and Aizhu Chen Additional reporting by Jessica Resnick-Ault and Andres Guerra Luz in New York, Collin Eaton in Houston, Yereth Rosen in Anchorage, and Josephine Mason in Beijing Writing by David Gaffen Editing by Chris Reese and Susan Thomas)

Energy shares in Asia climb as oil prices hold onto gains following US inventory decline

CNBC

  • Energy stocks in Asia traded higher on Friday.
  • Oil prices touched a two-week high in the last session after data from the U.S. Energy Information Administration showed U.S. crude stocks unexpectedly declined.
  • The S&P/ASX 200 energy sub-index was up 0.68 percent. Gains were also seen in oil-related stocks listed in Japan and Australia.
Pump jacks and wells are seen in an oil field on the Monterey Shale formation, March 23, 2014, near McKittrick, Calif.

Getty Images
Pump jacks and wells are seen in an oil field on the Monterey Shale formation, March 23, 2014, near McKittrick, Calif.

Oil-related stocks in Asia traded higher on Friday as oil prices recorded slight gains after touching two-week highs in the previous session.

Those gains in oil prices had come after U.S. crude stocks unexpectedly declined by 1.6 million barrels in the week ending Feb. 16, Reuters said, citing data from the U.S. Energy Information Administration. That compared to the 1.8 million-barrel rise in inventories forecast by experts.

Woodside Petroleum, Australia’s largest oil and gas company, was up 0.56 percent following those increases in prices. Other oil producers also gained: Santos rose 0.39 percent and Oil Search rose 1.46 percent.

More broadly, the S&P/ASX 200 energy sub-index traded higher by 0.68 percent in the afternoon Sydney time.

Energy stocks in Japan saw sharper gains, with oil producer Inpextrading higher by 2.55 percent and Cosmo Energy gaining 4.59 percent. JXTG Holdings, Japan’s largest refiner, was up 3.58 percent.

Meanwhile, Hong Kong-listed shares of Chinese oil producer CNOOCrose 0.88 percent in late morning trade local time. Oil giant China Petroleum and Chemical Corporation, or Sinopec, added 1.11 percent.

Oil prices were mostly steady on Friday. U.S. West Texas Intermediate crude futures advanced 0.05 percent to trade at $62.80 per barrel and Brent crude futures were off by 0.02 percent at $66.38.

“The unexpected fall in oil inventories in the U.S. should see support for crude oil prices remain strong,” said ANZ Research analysts in a Friday morning note.

“Prices were also supported by comments from UAE Energy Minister Suhail Al Mazrouei, who said the worry is undersupply, not oversupply, as demand remains strong amid the constraints on output,” they added.

Crude oil inventories down 1.6 million barrels

Crude oil inventories down 1.6 million barrels  

U.S. oil benchmark ends slightly lower

MarketWatch

Brent underpinned by pipeline outage in the North Sea

Getty Images
By

SARASJOLIN

MARKETS REPORTER

WILLIAMWATTS

DEPUTY MARKETS EDITOR

West Texas Intermediate crude oil for January delivery CLF8, +0.44% the U.S. benchmark, declined 14 cents, or 0.2%, to end at $57.16 a barrel after earlier trading as high as $57.78.

Brent oil for February LCOG8, +0.25% the global benchmark, gained 18 cents, or 0.3%< to close at $63.41 a barrel.

The moves mirrored a mixed session on Friday, when WTI rose 0.5%, but Brent shed 0.1%.

There was no clear catalyst for the turn lower for WTI. Analysts noted that Nigerian oil workers suspended a strike, according to Bloomberg, agreeing to reopen negotations with management next month. Position squaring ahead of the expiration Tuesday of the January WTI contract may have played a role, traders said.

U.S. futures had already turned lower when the U.S. Energy Information Administration forecast crude production from seven major shale regions would grow by 94,000 barrels a day in January.

The earlier optimism for the U.S. benchmark came after Baker HughesBHGE, +2.54%  reported that the number of active U.S. rigs drilling for oil was down 4 at 747 last week, breaking a three-week string of rising rig numbers. A drop in rigs implies a slowdown in drilling activity, which is usually boost oil prices.

Brent was underpinned by the closure of North Sea Forties pipeline due to a power outage.

“The outage of the North Sea’s most important oil and gas pipeline is continuing to lend support,” analysts at Commerzbank said in a note.

“As a result, there is currently a lack of a good 400,000 barrels per day of Forties oil, the leading oil type in the Brent basket. This should preclude any fall in the Brent price for the foreseeable future,” they added.

In other energy products on Monday, gasoline RBF8, +0.33%  rallied 1.1% to $1.6725 a gallon, while heating oil HOF8, +0.28%  climbed 1.1% to $1.9252 a gallon.

Natural gas NGF18, -0.11%  jumped 5.1% to $2.745 per million British thermal units, rebounding from a nearly 10-month closing low set Friday. The bounce came after forecasts were revised to show much colder than previously expected temperatures across much of the U.S. in the latter part of this month and early January, according to analysts at TFS Energy.